Our Calculation Of Intrinsic Value: Johnson & Johnson

Each week we run a DCF (Discounted Cash Flow) model on a company from our watchlist. This week’s pick: Johnson & Johnson (JNJ).

Profile

Johnson & Johnson is one of the world’s largest and most diversified healthcare companies, operating across pharmaceuticals, medical devices, and innovative medicine.

Following the spin-off of its consumer health business (Kenvue), JNJ is now more focused on higher-margin healthcare segments with stronger long-term growth potential.

The company’s business model is driven by:

• Global demand for innovative medicines

• Growth in surgical and medical technology products

• Strong recurring cash flow from established healthcare franchises

Johnson & Johnson’s competitive advantages include:

• A globally trusted healthcare brand with decades of operating history

• Broad diversification across therapeutic areas and medical technologies

• Significant scale in R&D, manufacturing, and global distribution

• Resilient earnings and strong free cash flow generation

JNJ continues to benefit from structural tailwinds including aging populations, rising healthcare spending, and continued innovation in oncology, immunology, and medtech.

DCF Analysis

Inputs:

• Discount Rate: 8%

• Terminal Growth Rate: 3%

• WACC: 8%

Forecasted Free Cash Flows (in billions USD)

2026: $19.9 → PV: $18.4
2027: $20.9 → PV: $17.9
2028: $22.0 → PV: $17.5
2029: $23.1 → PV: $17.0
2030: $24.3 → PV: $16.6

Total Present Value of FCFs = ~$87.4B

Terminal Value Calculation

Using perpetuity growth model with 2030 FCF = $24.3B:

TV = (24.3 × 1.03) ÷ (0.08 − 0.03)
TV ≈ $500.6B

Present Value of Terminal Value ≈ $340.7B

Enterprise Value

Enterprise Value = $87.4B + $340.7B = $428.1B

Net Debt

From balance sheet:

• Cash & Equivalents: ~$20.1B

• Total Debt: ~$47.9B

Net Debt ≈ $27.8B

Equity Value & Per-Share Value

Equity Value = $428.1B − $27.8B = $400.3B

Shares Outstanding: ~2.41B

Intrinsic Value per Share ≈ $165–170

Conclusion

DCF Value: ~$167
Current Price: ~$240
Margin of Safety: ~–30%

Johnson & Johnson remains a high-quality defensive business with durable competitive advantages, strong balance sheet strength, and dependable cash generation.

Its combination of innovative pharmaceuticals and medical devices provides resilience across economic cycles, while demographic trends should support long-term demand.

At current levels, however, the shares appear materially overvalued relative to conservative DCF assumptions. Future returns may depend more on earnings growth, dividend compounding, and successful pipeline execution than multiple expansion.