Target CorporationTGTNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $388.74 per share(market-calibrated)

+243.5%

Upside to Fair Value

Current

$113.17

Pure Model

$406.05

Fair Value

$388.74

Bull Case

$488.03

Bear Case

$329.69

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: $406.05.

What's Driving This Ratingfor TGT

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.64% of revenue (heavy investment phase). Model fades this to 3.00% by Year 10, freeing up ~$855M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 6.01% — below the sector mature average of 16.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $16.9B (12.73% margin).

→

Moderate revenue growth

Analyst consensus projects -1.70% revenue growth, fading to 2.50% by Year 10. Revenue reaches $132.7B (vs $106.6B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $325.12/share (20.7x terminal FCF) while exit multiple gives $486.98/share (33.2x 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 60.25% indicates efficient cash generation. FCF reaches $12.2B by Year 10 (9.21% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.10

Market Risk Premium4.50%

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

Cost of Equity (Re)9.47%

Cost of Debt

Pre-tax Cost of Debt2.81%

Tax Rate22.24%

After-tax Cost of Debt2.18%

Equity Weight (E/V)72.39%

Debt Weight (D/V)27.61%

WACC Calculation

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

WACC = (72.39% × 9.47%) + (27.61% × 2.18%)

= 7.46%

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	$116.6B	$123.0B	$132.7B
EBIT	$6.3B	$6.6B	$7.0B	$11.8B	$16.9B
Tax	$1.4B	$1.5B	$1.6B	$2.6B	$3.8B
NOPAT	$4.9B	$5.1B	$5.5B	$9.2B	$13.1B
+ Depreciation	$2.7B	$2.8B	$3.0B	$3.1B	$3.4B
- Capex	$3.8B	$3.8B	$3.9B	$4.0B	$4.0B
- Δ NWC	-$181M	$317M	$316M	$320M	$324M
Free Cash Flow	$3.9B	$3.8B	$4.2B	$8.1B	$12.2B
Discount Factor	0.931	0.806	0.698	0.604	0.487
Present Value	$3.7B	$3.0B	$2.9B	$4.9B	$5.9B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$12.2B

Terminal Growth Rate2.50%

WACC7.46%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$252.4B

PV of Terminal Value$122.9B

Exit Multiple Method

Year 10 EBITDA$20.3B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$405.4B

PV of Terminal Value$197.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$41.9B

PV of Terminal Value$122.9B

Enterprise Value$164.8B

(-) Net Debt$15.1B

Equity Value$149.7B

Shares Outstanding460M

Price per Share$325.12

Exit Multiple Method

PV of Projected FCFs$41.9B

PV of Terminal Value$197.5B

Enterprise Value$239.3B

(-) Net Debt$15.1B

Equity Value$224.2B

Shares Outstanding460M

Price per Share$486.98

Pure Model Fair Value

$406.05

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%
5.46%	$528.03	$558.04	$598.18	$654.65	$728.82
6.46%	$444.16	$461.24	$482.62	$510.18	$547.06
7.46%	$382.56	$393.23	$406.05	$421.74	$441.40
8.46%	$334.42	$341.52	$349.82	$359.63	$371.43
9.46%	$295.25	$300.21	$305.87	$312.41	$320.05

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

$329.69

191.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.38

Base Case

$406.05

258.8% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.10

Bull Case

$488.03

331.2% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.94

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

Growth Assumptions (Select Years)

Year 1 Revenue Growth-1.70%

Year 3 Revenue Growth2.97%

Year 5 Revenue Growth2.78%

Year 7 Revenue Growth2.67%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin6.01%

Terminal EBIT Margin16.00%

Tax Rate22.24%

Historical Capex / Rev3.64%

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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