Johnson & JohnsonJNJNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $352.78 per share(market-calibrated)

+41.9%

Upside to Fair Value

Current

$248.56

Pure Model

$396.15

Fair Value

$352.78

Bull Case

$521.55

Bear Case

$305.60

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $396.15.

What's Driving This Ratingfor JNJ

↓

CapEx normalizing toward maintenance

Historical CapEx is 4.56% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$1.7B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 24.39% — below the sector mature average of 27.17%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $38.3B (24.39% margin).

→

Moderate revenue growth

Analyst consensus projects 6.61% revenue growth, fading to 3.00% by Year 10. Revenue reaches $157.2B (vs $94.2B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.11% indicates efficient cash generation. FCF reaches $38.0B by Year 10 (24.17% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.35

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)6.06%

Cost of Debt

Pre-tax Cost of Debt1.23%

Tax Rate17.73%

After-tax Cost of Debt1.02%

Equity Weight (E/V)92.64%

Debt Weight (D/V)7.36%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (92.64% × 6.06%) + (7.36% × 1.02%)

= 5.69%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$100.4B	$112.9B	$127.4B	$141.2B	$157.2B
EBIT	$24.5B	$27.5B	$31.1B	$34.4B	$38.3B
Tax	$4.3B	$4.9B	$5.5B	$6.1B	$6.8B
NOPAT	$20.2B	$22.7B	$25.6B	$28.3B	$31.5B
+ Depreciation	$7.8B	$8.8B	$9.9B	$11.0B	$12.2B
- Capex	$4.6B	$4.9B	$5.2B	$5.4B	$5.5B
- Δ NWC	$398M	$418M	$478M	$425M	$293M
Free Cash Flow	$23.0B	$26.2B	$29.8B	$33.5B	$38.0B
Discount Factor	0.946	0.847	0.758	0.679	0.575
Present Value	$21.8B	$22.2B	$22.6B	$22.7B	$21.8B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$38.0B

Terminal Growth Rate3.00%

WACC5.69%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$1.5T

PV of Terminal Value$836.5B

Exit Multiple Method

Year 10 EBITDA$50.6B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$1.2T

PV of Terminal Value$698.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$223.0B

PV of Terminal Value$836.5B

Enterprise Value$1.1T

(-) Net Debt$28.2B

Equity Value$1.0T

Shares Outstanding2.4B

Price per Share$424.63

Exit Multiple Method

PV of Projected FCFs$223.0B

PV of Terminal Value$698.1B

Enterprise Value$921.1B

(-) Net Debt$28.2B

Equity Value$892.9B

Shares Outstanding2.4B

Price per Share$367.67

Pure Model Fair Value

$396.15

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
3.69%	$527.25	$505.31	$484.40	$464.47	$445.47
4.69%	$430.79	$474.74	$484.40	$464.47	$445.47
5.69%	$348.26	$368.45	$396.15	$436.49	$445.47
6.69%	$295.43	$306.54	$320.66	$339.21	$364.66
7.69%	$257.31	$264.11	$272.36	$282.57	$295.56

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$305.60

22.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.43

Base Case

$396.15

59.4% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.35

Bull Case

$521.55

109.8% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.61%

Year 3 Revenue Growth6.15%

Year 5 Revenue Growth6.24%

Year 7 Revenue Growth4.94%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin24.39%

Terminal EBIT Margin27.17%

Tax Rate17.73%

Historical Capex / Rev4.56%

Terminal Capex / Rev3.50%

NWC / Revenue6.39%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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