DCF Studio

    JNJ · NYQ · Healthcare

    Johnson & Johnson

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 181.47

    Market price

    USD 269.99

    Implied upside

    -32.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Current EV/EBITDA of 20.5x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 181.47-32.8%
    Exit multiple
    USD 292.33+8.3%
    Market price
    USD 269.99

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn17bn33bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 99.5bnUSD 105.0bnUSD 110.9bnUSD 117.1bnUSD 123.7bn+5.6%
    EBITUSD 25.7bnUSD 27.1bnUSD 28.6bnUSD 30.2bnUSD 31.9bn+5.6%
    NOPATUSD 21.7bnUSD 22.9bnUSD 24.2bnUSD 25.5bnUSD 26.9bn+5.6%
    Add depreciation & amortisationUSD 8.4bnUSD 8.9bnUSD 9.4bnUSD 9.9bnUSD 10.4bn+5.6%
    Less capital expenditureUSD -5.8bnUSD -6.2bnUSD -6.5bnUSD -6.9bnUSD -7.2bn+5.6%
    Less increase in working capitalUSD 2.6bnUSD 2.7bnUSD 2.9bnUSD 3.0bnUSD 3.2bn-5.6%
    Free cashflow to firmUSD 26.8bnUSD 28.3bnUSD 29.9bnUSD 31.5bnUSD 33.3bn+5.6%
    Discount factor0.96470.89790.83570.77790.7240-
    Present valueUSD 25.8bnUSD 25.4bnUSD 25.0bnUSD 24.5bnUSD 24.1bn-1.7%
    Present Value Of The ForecastUSD 124.9bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.487Reported 0.235, pulled toward 1.0 (Blume)
    Cost of equity7.68%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 650.6bn93.1% of capital
    Total debtUSD 47.9bn6.9% of capital, book value as a proxy
    Tax rate15.6%Effective, capped at statutory
    WACC7.44%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 181.47

    73% of EV

    Forecast FCFF, final year
    USD 33.3bn
    Capex at depreciation, working capital in reinvestment
    USD 26.9bn
    Less reinvestment at g/ROIC (15.0% of NOPAT)
    USD -4.0bn
    Capitalised
    USD 22.9bn
    ROIC (reported)
    16.6%
    Terminal value, undiscounted
    USD 474.9bn
    Terminal value, discounted
    USD 343.8bn
    Enterprise value
    USD 468.7bn
    Less net debt
    USD 27.8bn
    Equity value
    USD 440.9bn

    Exit at 20.0x EBITDA

    Value per shareUSD 292.33

    83% of EV

    Terminal value, undiscounted
    USD 846.9bn
    Terminal value, discounted
    USD 613.1bn
    Enterprise value
    USD 738.0bn
    Less net debt
    USD 27.8bn
    Equity value
    USD 710.2bn

    Spread between methods: 47%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.44%247.13270.25301.14344.57410.23
    6.44%197.66210.36226.21246.60273.84
    7.44%164.75172.37181.47192.58206.44
    8.44%141.25146.08151.69158.29166.17
    9.44%123.61126.80130.40134.54139.33

    Outlined: this model. Green text: above today's price of 269.99. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year5.6%14.1%+8.5pp
    EBIT margin25.8%38.3%+12.5pp
    Discount rate7.4%5.8%-1.7pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.