The news (via a 13F release) that Warren Buffett’s Berkshire Hathaway (BRK.A) had significantly reduced its holding in Johnson & Johnson (JNJ) has added to the existing pressure on the $JNJ share price. $JNJ has dropped 33.6% in the last six months. At Valuecruncher we decided to have a look at the intrinsic value of $JNJ.
Valuecruncher produces a valuation of US$55.65 for $JNJ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 16.0% above the current share price of US$47.97. $JNJ is currently well below our estimate of intrinsic value.
- Revenue: Reuters aggregates 11 analysts covering $JNJ and these analysts have a mean estimates of 2009 and 2010 revenues of US$62.1 billion and US$64.6 billion respectively. For our analysis we have used US$62.0 billion in 2009, US$64.0 billion in 2010 and US$67.0 billion in 2011.
- Profitability: We have used an EBITDA margin of 30% flat to 2011. Reuters has $JNJ‘s EBITD margin at 31.1% last year with a five-year average of 29.7%
- Capital Expenditure: We have assumed capital expenditures of US$3.25 billion in 2009 and 2010 rising to US$3.5 billion in 2011 and beyond.
- Discount Rate: 10.0%.
- Terminal Growth Rate: 3.0%.
Our analysis incorporates the cash and debt the $JNJ balance sheet – Valuecruncher calculates a net debt number.
Play with our assumptions – what does your analysis say?