Johnson & Johnson: $JNJ Cash Flow Valuation

Current Price: ~ $106/share
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 5-Year Growth: ~ 12% per year

Consensus Forecast Company 5-Year Growth: ~ 7% per year

Internal Growth Rate: ~ 6%

Sustainable Growth Rate: ~ 11%

Scenario 1

• Start at $13819 million FCF
• Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

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,

• Assume a 5-year 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

Morningstar.com

Yahoo! Finance

JNJ.com

Disclosure: I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Johnson & Johnson: $JNJ Cash Flow Update

Current Price: ~ $65/share
Projected Yield: ~ 3.54%



Johnson & Johnson ranks as the world's largest and most diverse health-care company. The company comprises three divisions: pharmaceutical, medical devices and diagnostics, and consumer. While the pharmaceutical division currently represents close to 36% of total sales, we expect patent losses and the Synthes acquisition to reduce this proportion to approximately 27% during the next 10 years, with the device segment picking up the majority of the share.           

Estimated WACC for the firm today is 7.16% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2002	6077
2003	8333
2004	8956
2005	9245
2006	11510
2007	11939
2008	11906
2009	14206
2010	14001
2011	11405

Average Annual Growth FCF: ~ 8%

CAGR FCF: ~ 7%

Consensus Forecast Industry 5-Year Growth: ~ 7% per year

Consensus Forecast Company 5-Year Growth: ~ 6% per year

Internal Growth Rate: ~ 3%

Sustainable Growth Rate: ~ 6%

Scenario 1
Average FCF (2011, 2010) is $12703 million

• Start at $12703 million FCF
• Assume a 5-year growth rate in FCF of 6% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	12703
1	13465
2	14273
3	15129
4	16037
5	16999
Terminal Value	251581

The firm's future cash flows, discounted at a WACC of 7.16%, give a present value for the entire firm (Debt + Equity) of $239496 million. If the firm's fair value of debt is estimated at $15585 million, then the fair value of the firm's equity could be $223911 million.  $223911 million / 2750 million outstanding shares is approximately $81 per share and a 20% margin of safety is $65/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 2% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	12703
1	12957
2	13216
3	13481
4	13750
5	14025
Terminal Value	199730

• Present Value of the entire firm (Debt + Equity): $196233 million
• Value of Equity: $180648 million or $66/share
• 20% margin of safety is $53/share

Sources

Morningstar.com

Yahoo! Finance

Johnson & Johnson

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Johnson & Johnson: $JNJ Announces Dividend Increase of 5.6%

NEW BRUNSWICK, N.J., April 28, 2011 /PRNewswire/ -- Johnson & Johnson (NYSE: JNJ) today announced that its Board of Directors has declared a 5.6% increase in the quarterly dividend rate, from $0.54 per share to $0.57 per share.  The increase was announced this morning at the Annual Meeting of Shareholders in New Brunswick, NJ.


At the new rate, the indicated dividend on an annual basis is $2.28 per share compared to the previous rate of $2.16 per share.  The next quarterly dividend is payable on June 14, 2011 to shareholders of record as of May 31, 2011.


Source
JNJ.com - press release

Johnson & Johnson: $JNJ Announces $21.3 Billion Deal With Synthes

Johnson & Johnson said Wednesday that it had agreed to buy Synthes, the medical equipment maker, for $21.3 billion in cash and shares, one of the biggest deals ever in the healthcare sector.


Source
Dealbook
JNJ.com - press release

Johnson & Johnson: $JNJ Holds Deal Talks With Synthes

Johnson & Johnson is in talks to buy a Swiss-American medical equipment maker (Dealbook)

Johnson & Johnson: $JNJ Provides Additional Information Regarding Amended Agreement With Merck

NEW BRUNSWICK, N.J., April 15, 2011 /PRNewswire/ -- Johnson & Johnson (NYSE: JNJ) provided additional information today on its amended agreement with Merck regarding distribution rights for REMICADE® (infliximab) and SIMPONI® (golimumab) in markets outside the United States. The amended agreement announced today in a separate news release from both companies concludes a pending arbitration, which had been filed by Johnson & Johnson in May 2009.  

Under the terms of the amended distribution agreement, Merck's subsidiary, Schering-Plough (Ireland) will relinquish exclusive marketing rights for REMICADE and SIMPONI to Johnson & Johnson’s Janssen pharmaceutical companies in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific* (“relinquished territories”), effective July 1, 2011.  Merck will retain exclusive marketing rights throughout Europe, Russia and Turkey (“retained territories”). The retained territories represent approximately 70 percent of Merck's 2010 revenue of approximately $2.8 billion from REMICADE and SIMPONI, while the relinquished territories represent approximately 30 percent.  In addition, all profit derived from Merck's exclusive distribution of the two products in the retained territories will be equally divided between Merck and Johnson & Johnson, beginning July 1, 2011.  Under the prior terms of the distribution agreement, the contribution income (profit) split, which is currently at 58 percent to Merck and 42 percent to Centocor Ortho Biotech Inc., would have declined for Merck and increased for Johnson & Johnson each year until 2014, when it would have been equally divided.  Johnson & Johnson will also receive a one-time payment of $500 million in April 2011. Merck expects to file the amended agreement on a Form 8-K with the Securities and Exchange Commission shortly.

The company is providing the following additional details relevant to the amended agreement:

• In 2010, Johnson & Johnson reported annual sales for REMICADE of $4.6 billion and annual sales for SIMPONI of $226 million, which included sales of these products to its distribution partner Merck of approximately $1.2 billion.  In the territories being relinquished to Johnson & Johnson as a result of the amended agreement, 2010 annual end-user sales for REMICADE and SIMPONI were approximately $900 million.  The amended agreement impact on 2010 sales on a pro forma basis would have resulted in nearly $500 million in incremental net sales being recorded by Johnson & Johnson on an annual basis for these products, which excludes sales that were previously recorded.  Johnson & Johnson will begin recording 2011 sales of product from the relinquished territories on July 1, 2011.

• The division of contribution income on sales will be amended to a 50 percent/50 percent split between Johnson & Johnson and Merck, from July 1, 2011, through Oct. 1, 2024.  This compares to the prior split of 42 percent/58 percent in 2011 for Johnson & Johnson and Merck respectively, which would have increased to a 50 percent/50 percent split in 2014.

• Johnson & Johnson will receive a one-time, $500 million payment from Merck during the second quarter of 2011.

• The 2011 earnings impact is not expected to be significant.

• The company will discuss the amended agreement during its scheduled quarterly earnings call on April 19, 2011.

Source
SEC.gov - 8K filing press release

JNJ.com - press release

Johnson & Johnson: $JNJ announces voluntary recall

Titusville, N.J., April 14, 2011 - Ortho-McNeil Neurologics Division of Ortho-McNeil-Janssen Pharmaceuticals, Inc., today announced it is voluntarily recalling two lots of TOPAMAX® (topiramate) 100mg Tablets.  These two lots were shipped between 10/19/2010 and 12/28/2010 and distributed in the U.S. and Puerto Rico.  While the recall encompasses approximately 57,000 bottles of TOPAMAX®, the company believes there are fewer than 6,000 bottles remaining in the marketplace.  The recall stems from four consumer reports of an uncharacteristic odor thought to be caused by trace amounts of TBA (2,4,6 tribromoanisole). 

About Ortho-McNeil Neurologics Division of Ortho-McNeil-Janssen Pharmaceuticals, Inc.
Headquartered in Titusville, N.J., Ortho-McNeil Neurologics Division of Ortho-McNeil-Janssen Pharmaceuticals, Inc. is a Johnson & Johnson company that focuses exclusively on providing solutions that improve neurological health.  The Company currently has products for Alzheimer's disease, epilepsy, and acute and preventive migraine treatment.  In conjunction with internal and external research partners, the Company continues to explore new opportunities to develop solutions for unmet healthcare needs in neurology.


Source
JNJ.com - press release

Johnson & Johnson: $JNJ Announces Settlement with U.S. Department of Justice and U.S. Securities and Exchange Commission

New Brunswick, NJ (April 8, 2011) - Johnson & Johnson (NYSE: JNJ) announced today it will pay $70,006,316 in fines, disgorgement and interest, an amount previously reserved for, in a settlement related to publicly disclosed Foreign Corrupt Practices Act (FCPA) investigations by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC). The Company hopes to reach a settlement of a related investigation by the U.K. Serious Fraud Office (SFO) in several days.


Source
JNJ.com - press release

Johnson & Johnson: $JNJ Announces Voluntary Recall of Certain OTC Products

March 29, 2011 - Fort Washington, PA - McNeil Consumer Healthcare, Division of McNEIL-PPC, Inc., is recalling one product lot of TYLENOL^® 8 Hour Extended Release Caplets 150 count bottles distributed in the United States. McNeil is taking this action as part of our ongoing surveillance and monitoring efforts that identified a small number of complaints of a musty or moldy odor. The uncharacteristic odor is thought to be caused by the presence of trace amounts of chemicals called 2,4,6-tribromoanisole (TBA) and 2,4,6-trichloroanisole (TCA). This voluntary action is being taken as a precaution and the risk of adverse medical events is remote. The product was manufactured at the McNeil Consumer Healthcare plant in Fort Washington, PA prior to the company's voluntary closure of the facility in April 2010.



The lot number for the recalled product can be found on the side of the bottle label.

Source:
JNJ.com - press release