Johnson & Johnson (JNJ) DCF Valuation: Is The Stock Undervalued?

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As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that are not currently in our screens, Johnson & Johnson (JNJ).


Johnson & Johnson is the world’s largest and most diverse healthcare firm. Three divisions make up the firm: pharmaceutical, medical devices and diagnostics, and consumer. The drug and device groups represent close to 80% of sales and drive the majority of cash flows for the firm. The drug division focuses on the following therapeutic areas: immunology, oncology, neurology, pulmonary, cardiology, and metabolic diseases. The device segment focuses on orthopedics, surgery tools, vision care, and a few smaller areas. The last segment of consumer focuses on baby care, beauty, oral care, over-the-counter drugs, and women’s health. The consumer group is being divested in 2023 under the new name Kenvue. Geographically, just over half of total revenue is generated in the United States.

Recent Performance

Over the past twelve months the share price is down 4.28%.

JNJ Chart

JNJ data by YCharts


  • Discount Rate: 6.3%
  • Terminal Growth Rate: 2%
  • WACC: 6.3%

Forecasted Free Cash Flows (FCFs)

Year FCF (billions) PV(billions)
2024 21.84 20.55
2025 22.72 20.11
2026 23.63 19.67
2027 24.58 19.25
2028 25.57 18.84

Terminal Value

Terminal Value = FCF * (1 + g) / (r – g) = 606.54 billion

Present Value of Terminal Value

PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 446.89 billion

Present Value of Free Cash Flows

Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 98.42 billion

Enterprise Value

Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 545.30billion

Net Debt

Net Debt = Total Debt – Total Cash = 25.53 billion

Equity Value

Equity Value = Enterprise Value – Net Debt = 519.77 billion

Per-Share DCF Value

Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $215.94


DCF Value Current Price Margin of Safety
$215.94 $156.41 27.57%

Based on the DCF valuation, the stock is undervalued. The DCF value of $215.94 per share is higher than the current market price of $156.41. The Margin of Safety is 27.57%.

It is important to note that this valuation is based on a number of assumptions, and these assumptions could change in the future. This valuation is meant to be a back-of-the-envelope analyse that could be used as a starting point in a much more thorough valuation process. As a result, it is important to do your own research before making any investment decision.

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