Deep Throat: I don’t really like Target, which Derek said to look into. Retail’s gonna be hit the hardest during the recession, and I don’t know that Target enjoys the same economic or brand advantages Walmart has.
Cogitator: The problem with your reasoning is that (1) recessionary effects may already be accounted for in the stock price and (2) Walmart has no smart activist investor to push the price toward intrinsic value. I have explained the first point many times. A company is worth the sum of its cash flows from now until the end of the world discounted to the present—thus value neither declines in a recession nor increases in a boom. The public’s constant exposure to the news (with all of its poor reasoning) assures that they will never understand this simple principle. [REDACTED], your employment with [REDACTED] may put you in an even worse position.
Target was recently selling below its real estate value, let alone its earning power. It is essentially in the same situation as Sears Holdings, except that the earning power is more predictable.
Ultimately the problem with your comments is that they are all qualitative. It is surprising to hear this from someone with a quantitative bent. You can take it as an axiom that the most salient thoughts (as most qualitative thoughts are) tend to be factored into the stock price.
http://www.valueinvestingcongress.com/landing/p09/pershing/target.php
[...] TagetCorp: A Case Study - Via Stable Boy [...]
Cog -
Any further comments, observations on Ackmans presentation? Do you think the market would assign the valuation to TGT and the TIP that ackman suggests? I think it makes for a great case study to discuss.
I do not believe that there is any precedent for such an arrangement.
If TGT and the TIP operate as projected, shareholders at current prices will do very well.
It is a savvy and fundamentally stupid proposal that rearranges assets for a tax break. Fundamentally it creates zero value and destroys value in incremental administration. The takeaway is how asinine a country’s laws must be to encourage a room full of bright people to consider such crap that doesn’t advance productivity one iota.
Exactly. The idea is this: Ackman is down 75% on his Target investment because he structured it using call options and total return swaps to leverage his economic ownership in the company. He has a timetable; and he desperately needs to lift the market price as quickly as possible. Moreover, I would have to imagine that Target’s management is looking at this with considerable skepticism.
you can’ create sustainable value for shareholders on tax schemes alone. Ackman proposal is suspect and would increase risk on Target’s retail operations.
An article on Sears and its real estate value, with a table from Ackman’s analysis pointing out the absurdity in the market price (then $135 per share):