Target

SSG Presentation to the

Cincinnati Model Investment Club

by James Hurt

Standard SSG Presentation• A discussion of the industry.

• A discussion of Target.– Who they are.– What they do.– Who their competitors are.

• A discussion of my SSG for Target.

• A discussion of SSG’s for competitors.

• A conclusion of sorts.

Retail Store Industry

• Comparable-store sales and profits at most leading department store chains have been hurt by weak consumer demand for high-end apparel and home furnishings.

• Major discount chains have seen their same-store sales rebound to levels near the peaks achieved in the late Nineties.

Retail Store Industry

• The current economic scenario is working to the advantage of discounters, and we look for solid top- and bottom-line momentum at the two leading players, Wal-Mart and Target.

• Wal-Mart and Target’s near-term earnings prospects have been enhanced by Kmart’s bankruptcy filing.

Target

• Formerly known as Dayton-Hudson.

• HQ in Minneapolis.

• Three operating segments:– 1107 Target Stores, mainly in the upper

Midwest. 82% or revenues.– 264 Mervyn’s stores.– 64 Marshall Field’s stores.

Target

• Stores in every state save Alaska, Hawaii, and Vermont.

• Highest density in Minnesota, upper Midwest, and Arizona.

• Plan 81 new super stores this year and 75 more next year.

• Last years revenues were $40 Billion.

Wal-Mart

• Mass merchandising stores

• Segments– Wal-Mart discount stores.

– Super Centers

– SAM’s Clubs

– Neighborhood Markets

• 3244 stores, in every state.

• Starting to build stores overseas.

• Last year’s revenues were $218 Billion.

Kohl’s

• Family oriented specialty department stores.– Fewer departments than full-line department

stores.– Moderately priced apparel, shoes, home

products.– Middle income shoppers

• 420 stores, mainly in the Midwest.

• Last year’s revenues were $7.5 Billion.

SSG For Target

• No preferred stock.

• 900 Million shares outstanding.

• Insiders own 1.3% (12 Million shares).

• Institutions own 83%.

• $10 Billion in debt, 57% of capitalization.

• Trailing Twelve Months Growth– Sales 15.1% EPS 35.7%

SSG For Target

• 10 year sales line is straight at 9.5% growth.

• EPS ten year growth 20.0%.

• Pre-Tax Profit margin even at 5.3%.– 5.1% for Wal-Mart and 9.2% for Kohl’s.

• Return on Equity roughly even at 18.5%.– 20.1% for Wal-Mart and 16.0% for Kohl’s.

Projections For Target

• Projected sales growth to continue at 9.5%.

• Projected EPS growth to match sales growth.

• Projected EPS to be $2.46 in 2006.

• Projected High PE of 28.0 and Low PE of 16.0.

Five Year Price Rangefor Target

• Projected High Price $68.90

• Projected Low Price $25.00

• Current Price is $33.66, in Buy range

• Upside-Downside ratio is 4.1 to 1

• 104.7% price appreciation.

• Total Five Year Return is 18.4% per year.

SSG For Wal-Mart• No preferred stock.

• 4,500 Million shares outstanding.

• Insiders own 38.9% (1.7 Billion shares).

• Institutions own 35.4%.– Insiders + Institutions own 74.3%.

• $22 Billion in debt, 34% of capitalization.

• Trailing Twelve Months Growth– Sales 14.4% EPS 19.4%

SSG For Wal-Mart

• 10 year sales line is straight at 15.9% growth.

• EPS ten year growth 15.5%.

• Pre-Tax Profit margin even at 5.1%.– 5.3% for Target and 9.2% for Kohl’s.

• Return on Equity roughly even at 20.1%.– 18.5% for Target and 16.0% for Kohl’s.

Projections For Wal-Mart

• Projected sales growth to continue at 14.0%.

• Projected EPS growth to match sales growth.

• Projected EPS to be $2.87 in 2006.

• Projected High PE of 30.0 and Low PE of 15.0.

Five Year Price Rangefor Wal-Mart

• Projected High Price $86.10

• Projected Low Price $22.40

• Current Price is $54.11, in Hold range

• Upside-Downside ratio is 1.0 to 1

• 59.1% price appreciation.

• Total Five Year Return is 11.8% per year.

SSG For Kohl’s• No preferred stock.

• 1,100 Million shares outstanding.

• Insiders own 13.3% (146 Million shares).

• Institutions own 83.3%.– Insiders + Institutions own 96.6%.

• $1.1 Billion in debt, 27% of capitalization.

• Trailing Twelve Months Growth– Sales 25.7% EPS 40.9%

SSG For Kohl’s

• 10 year sales line is straight at 24.2% growth.

• EPS ten year growth 31.0%.

• Pre-Tax Profit margin even at 9.2%.– 5.3% for Target and 5.1% for Wal-Mart.

• Return on Equity roughly even at 16.0%.– 18.5% for Target and 20.1% for Wal-Mart.

Projections For Kohl’s

• Projected sales growth to continue at 15.0%.

• Projected EPS growth to match sales growth.

• Projected EPS to be $2.92 in 2006.

• Projected High PE of 30.0 and Low PE of 20.0.

Five Year Price Rangefor Kohl’s

• Projected High Price $87.60

• Projected Low Price $29.00

• Current Price is $69.77, in Hold range

• Upside-Downside ratio is 0.4 to 1

• 25.6% price appreciation.

• Total Five Year Return is 5.3% per year.

Conclusions• All three companies are very good

companies, with Kohl’s having perhaps the best overall management.

• Current prices for Kohl’s (PE = 45.6) and Wal-Mart (PE = 34.9) are to high.

• Target has lowest growth potential, and the lowest PE (PE = 20.3). Target’s price is in the buy zone.

• Target may have a problem with debt.