Valuation Case Valuing Target 2024 You have been hired as an equity analyst and asked to estimate the stock price of Target Corporation (TGT). See the questions on page 2. After examining its financials and growth expectations, you decide to use the dividend discount models (DDM) and price-multiples approaches to estimate Target's intrinsic value. Target's stock price, earnings per share (EPS), and dividends per share (DPS) for the past 5 years are given below.

Fiscal Year Stock Price $ EPS $ DPS $ 2019 124.76 6.34 2.60 2020 176.53 8.64 2.68 2021 231.44 13.56 3.16 2022 149.04 5.98 3.96 2023 142.42 8.33 4.36

Analysts have estimated Target's perpetual constant dividend growth rate at 7%. Dividends are projected to increase at an annual rate of 12% in the next five years (2024-28). Beyond 2028, the annual dividend growth is expected to decline to a constant growth rate of 7%.

The beta of Target is estimated at 1.12. The current U.S. 10-year Treasury bond yield is 4.2%. Historically, the market risk premium in the U.S. stock market has been estimated as 6%. The required return of a stock or the discount rate is estimated using the Capital Asset Pricing Model (CAPM) equation.

You have compiled the projected earnings per share for Target and Walmart in the retail store industry.

Retail Stores (Stock Symbol) Current Stock Price $ (Feb 2024) Projected EPS $ for 2024 Target (TGT) 152.92 9.14 Walmart (WMT) 58.61 2.35 Questions

Assume the last year (2023) as year zero. Your assignment is to value Target as of March 2024 based on the information provided. Answer the following questions.

1. What is the value of Target using the constant dividend growth model? (20 pts)

2. What is the value of Target using the two-stage dividend growth model? (40 pts)

3. What is the value of Target using the past 5-year average price-earnings multiple of Target? (20 pts)

4. What is the value of Target using the forward Price-earnings multiple of Walmart? (15 pts)

5. Would you recommend buying Target stock? How would the current and expected U.S. and global economic environment impact your decision? Explain clearly and completely. (5 points)

Assignment Prepare solutions to the above questions in Excel. Please make sure to show all your calculations and describe any assumptions