Yield: ~ 2.56%
Johnson & Johnson is a holding company, which is engaged in the research and development, manufacture and sale of a range of products in the health care field within its Consumer, Pharmaceutical and Medical Devices, and Diagnostics business segments.
Estimated WACC for the firm today is 7.50% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Year

FCF $Millions

2004

8956

2005

9245

2006

11510

2007

11939

2008

11906

2009

14206

2010

14001

2011

11405

2012

12462

2013

13819

Average Annual Growth FCF: ~ 6%
CAGR FCF: ~ 5%
Consensus Forecast Industry 5Year Growth: ~ 12% per year
Consensus Forecast Company 5Year Growth: ~ 7% per year
Internal Growth Rate: ~ 6%
Sustainable Growth Rate: ~ 11%
Scenario 1
 Start at $13819 million FCF
 Assume a 5year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future free cash flows, discounted at a WACC of 7.50%, give a present value for the entire firm (Debt + Equity) of $260565 million. If the firm's fair value of debt is estimated at $15013 million, then the fair value of the firm's equity could be $245552 million. $245552 million / 2830 million outstanding shares is approximately $87 per share and a 20% margin of safety is $70/share.
Year

FCF $Millions

0

13819

1

14786

2

15821

3

16929

4

18114

5

19382

Terminal Value

276333

The firm's future free cash flows, discounted at a WACC of 7.50%, give a present value for the entire firm (Debt + Equity) of $260565 million. If the firm's fair value of debt is estimated at $15013 million, then the fair value of the firm's equity could be $245552 million. $245552 million / 2830 million outstanding shares is approximately $87 per share and a 20% margin of safety is $70/share.
Scenario 2
All else being equal,
All else being equal,
 Assume a 5year growth rate in FCF of 11% per year, then 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year

FCF $Millions

0

13819

1

15339

2

17026

3

18899

4

20978

5

23286

Terminal Value

344403

 Present Value of the entire firm (Debt + Equity): $315975 million
 Value of Equity: $300962 million or $106/share
 20% margin of safety is $85/share
Sources
Disclosure: I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.