So as I work my way through the "Dirty Thirty" Evaluation Tool series (part 1 here) I wanted to go ahead and also post the my latest analysis on my current holdings. I will work through these one by one until I am through the entire lot, and most likely add some positions to the portfolio that will inevitably put me even further behind the proverbial eight ball.
Below I have embedded a pdf copy of my D30 analysis. Remember that this analysis is my opinion and is not to be interpreted as financial advice. Again this is my OPINION! Okay so now that the legal stuff is out there let's take a look at the D30 breakdown.
As you can see TGT currently garners a safety rating of 50%, which pretty much means that I really need to find something inside (or outside) the analysis to persuade me one way or another. Why does the rating come in at this? Let's dig deeper.
- Current Comparative Values
- Dividend Analysis
Target does have some really good things going for it. First in terms of comparative values this passes with both the P/E and Forward P/E falling well below where I love to buy companies. Target falls below its 10 year historical median of 14.75. The forward P/E projects to be a bit closer to this but seemingly still is relatively low due to the worries that currently hover around the retail sector. Target also sells at a Price-to-Sales ratio well below 1. I really like seeing this as I don't like to pay more than $1 per $1 of revenue being brought in by the company.
The second thing I like about Target is their debt. They have brought down their long term debt in a year-over-year basis and also have decreased their interest expense along with it. The current portion of their long term debt has increased, something that may effect some EPS, but with a decrease payroll it Target squeezes out this section with a good rating.
Finally this brings me to the dividend. Oh that sweet, sweet dividend that comes along with Target. Sitting at a prime 4.07% Target's yield is well above their 5 year history and also well above the S&P 500 average. Add to this the dividend growth and buybacks and I love what I see.
Now the bad...
Well it had to come right? Their is a reason that Target sits at such a nice yield and that reason is because of the three sectors that they failed at:
- Revenue, Sales, Income
- Cash Flow Analysis
While I realize that the 10 and 1 year revenue gains per share met my standards, unfortunately the 5 year did not...Strike 1. Add to this a YoY decline in total revenue and a hefty decrease in net income leads to a fail in this section.
Next comes to the cash flow analysis. Now a decrease in Free Cash Flow and Operating Cash Flow comes along with the above decrease in revenue and income right? Of course. What really worries me is the slight decrease in net operating cash flow/sales, which could only get worse if the squeeze on margins continue.
This brings us to their earnings. At the risk of sounding like a broken record this also is due to the the factors contained in the last two paragraphs. A decrease in YoY EPS is due to the squeeze in margins and decrease in total sales.
Wow thanks Mr. Obvious!
If that is what is going through your mind I don't blame you. I am not pointing out anything revolutionary here but simply am stating simple facts that are brought about by the numbers.
Now you may be sitting there thinking,
Okay so this guy just gave this a 50% rating, a price target of $69.95, and seemingly a buy rating even though it failed pretty much every category that has to do with their revenue/earnings?
Again you would be exactly right, but hear me out. Yes earnings have been down recently but Target has a long history of revenue growth and giving money back to the investor. I believe that Target has fallen victim to the seemingly irrational fear that retail is already dead. I honestly think that Target will not only get back on the right track with their new store direction but also will hit my target (pun definitely intended).
As always feel free to leave any thoughts or comments below and I will respond to them as soon as I can.