Target CorporationTGTNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $347.04 per share(market-calibrated)

+189.0%

Upside to Fair Value

Current

$120.08

Pure Model

$355.79

Fair Value

$347.04

Bull Case

$419.09

Bear Case

$292.13

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $355.79.

What's Driving This Ratingfor TGT

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.91% of revenue (heavy investment phase). Model fades this to 3.00% by Year 10, freeing up ~$1.2B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 5.61% — below the sector mature average of 16.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $17.1B (12.60% margin).

→

Moderate revenue growth

Analyst consensus projects -0.02% revenue growth, fading to 2.50% by Year 10. Revenue reaches $135.4B (vs $104.8B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $253.88/share (15.2x terminal FCF) while exit multiple gives $457.69/share (33.1x terminal FCF). The 20x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.50% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 60.50% indicates efficient cash generation. FCF reaches $12.6B by Year 10 (9.27% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.12

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.53%

Cost of Debt

Pre-tax Cost of Debt8.07%

Tax Rate22.28%

After-tax Cost of Debt6.27%

Equity Weight (E/V)90.70%

Debt Weight (D/V)9.30%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (90.70% × 9.53%) + (9.30% × 6.27%)

= 9.23%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$104.8B	$109.8B	$117.5B	$125.1B	$135.4B
EBIT	$5.9B	$6.2B	$6.6B	$11.7B	$17.1B
Tax	$1.3B	$1.4B	$1.5B	$2.6B	$3.8B
NOPAT	$4.6B	$4.8B	$5.1B	$9.1B	$13.3B
+ Depreciation	$2.9B	$3.0B	$3.2B	$3.4B	$3.7B
- Capex	$4.1B	$4.1B	$4.1B	$4.1B	$4.1B
- Δ NWC	-$2M	$303M	$391M	$372M	$330M
Free Cash Flow	$3.3B	$3.4B	$3.8B	$8.0B	$12.6B
Discount Factor	0.916	0.767	0.643	0.539	0.414
Present Value	$3.0B	$2.6B	$2.5B	$4.3B	$5.2B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$12.6B

Terminal Growth Rate2.50%

WACC9.23%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$191.2B

PV of Terminal Value$79.1B

Exit Multiple Method

Year 10 EBITDA$20.7B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$415.0B

PV of Terminal Value$171.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$36.3B

PV of Terminal Value$79.1B

Enterprise Value$115.4B

(-) Net Debt$104M

Equity Value$115.3B

Shares Outstanding454M

Price per Share$253.88

Exit Multiple Method

PV of Projected FCFs$36.3B

PV of Terminal Value$171.6B

Enterprise Value$207.9B

(-) Net Debt$104M

Equity Value$207.8B

Shares Outstanding454M

Price per Share$457.69

Pure Model Fair Value

$355.79

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
7.23%	$438.79	$451.11	$466.02	$484.46	$507.85
8.23%	$386.19	$394.29	$403.79	$415.12	$428.84
9.23%	$343.78	$349.37	$355.79	$363.24	$371.99
10.23%	$308.54	$312.54	$317.06	$322.21	$328.13
11.23%	$278.64	$281.59	$284.88	$288.58	$292.75

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$292.13

143.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.40

Base Case

$355.79

196.3% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.12

Bull Case

$419.09

249.0% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.95

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Defensive Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-0.02%

Year 3 Revenue Growth2.83%

Year 5 Revenue Growth3.45%

Year 7 Revenue Growth3.07%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin5.61%

Terminal EBIT Margin16.00%

Tax Rate22.28%

Historical Capex / Rev3.91%

Terminal Capex / Rev3.00%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Defensive sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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