Analyst: Target’s ship could be worth $ 14 billion

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Venture into hypothetical territory, but with the idea of ​​understanding some of the factors behind discount retailers Target, Inc.‘s (NYSE: TGT) valuation – investment bank and wealth management company UBS today provided insight into the value of Target’s Shipt delivery service. According to UBS analysis, which uses the recent IPO of DoorDash, Inc. (NYSE: DASH) For reference, Shipt could be worth $ 14 billion as a standalone IPO.

The share price of Target dropped this week after its last holiday sales report despite the retailer posting a 17.2% year-over-year comparable sales jump in November and December. The causes of the decline could be slower sales growth compared to the third quarter (Q3) and the possibility that this growth will run out of steam further in 2021.

Image source: Getty Images.

UBS claims that Shipt gives Target more value as a wholly owned service, as it currently does, but provides a mathematical snapshot of Shipt’s value as a DoorDash-type delivery notional IPO.

UBS analyst Michael Lasser notes a 300% growth spurt for Shipt during the holiday season. It lays out the mathematical basis for the $ 14 billion valuation, using “a scenario where Shipt collects a fee equivalent to 20% of its GMV” and half the fee theoretically coming from outside customers. A 26-fold multiple of “~ 500-600mm of annual royalty revenue” results in Shipt’s published rating as an independent entity.

Shipt could potentially be more profitable than DoorDash, which still has profitability issues although it was valued at $ 50 billion when it launched its own IPO. Regardless of the fact that Target has previously considered parting ways with Shipt as an IPO, however, the data appears to support a robust valuation of Target’s shares, given the value of its shipping segment.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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