Stock Analysis on Net
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Stock Analysis on Net

Johnson & Johnson (NYSE:JNJ)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Johnson & Johnson, free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 9.04%
01 FCFF0 21,325
1 FCFF1 22,475 = 21,325 × (1 + 5.39%) 20,612
2 FCFF2 23,710 = 22,475 × (1 + 5.49%) 19,942
3 FCFF3 25,037 = 23,710 × (1 + 5.60%) 19,313
4 FCFF4 26,464 = 25,037 × (1 + 5.70%) 18,722
5 FCFF5 27,999 = 26,464 × (1 + 5.80%) 18,167
5 Terminal value (TV5) 915,872 = 27,999 × (1 + 5.80%) ÷ (9.04% – 5.80%) 594,246
Intrinsic value of Johnson & Johnson capital 691,003
Less: Borrowings (fair value) 46,233
Intrinsic value of Johnson & Johnson common stock 644,770
 
Intrinsic value of Johnson & Johnson common stock (per share) $267.84
Current share price $270.56

Based on: 10-K (reporting date: 2025-12-28).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Johnson & Johnson, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 651,322 0.93 9.46%
Borrowings (fair value) 46,233 0.07 3.04% = 3.54% × (1 – 14.12%)

Based on: 10-K (reporting date: 2025-12-28).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 2,407,310,266 × $270.56
= $651,321,865,568.96

   Borrowings (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (17.70% + 15.70% + 11.50% + 17.40% + 8.30%) ÷ 5
= 14.12%

WACC = 9.04%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Johnson & Johnson, PRAT model

Microsoft Excel
Average Dec 28, 2025 Dec 29, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021
Selected Financial Data (US$ in millions)
Interest expense, net of portion capitalized 971 755 772 276 183
Net earnings from discontinued operations, net of tax — — 21,827 — —
Net earnings 26,804 14,066 35,153 17,941 20,878
 
Effective income tax rate (EITR)1 17.70% 15.70% 11.50% 17.40% 8.30%
 
Interest expense, net of portion capitalized, after tax2 799 636 683 228 168
Add: Cash dividends paid 12,381 11,823 11,770 11,682 11,032
Interest expense (after tax) and dividends 13,180 12,459 12,453 11,910 11,200
 
EBIT(1 – EITR)3 27,603 14,702 14,009 18,169 21,046
 
Loans and notes payable 8,495 5,983 3,451 12,771 3,766
Long-term debt, excluding current portion 39,438 30,651 25,881 26,888 29,985
Shareholders’ equity 81,544 71,490 68,774 76,804 74,023
Total capital 129,477 108,124 98,106 116,463 107,774
Financial Ratios
Retention rate (RR)4 0.52 0.15 0.11 0.34 0.47
Return on invested capital (ROIC)5 21.32% 13.60% 14.28% 15.60% 19.53%
Averages
RR 0.32
ROIC 16.86%
 
FCFF growth rate (g)6 5.39%

Based on: 10-K (reporting date: 2025-12-28), 10-K (reporting date: 2024-12-29), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).

1 See details »

2025 Calculations

2 Interest expense, net of portion capitalized, after tax = Interest expense, net of portion capitalized × (1 – EITR)
= 971 × (1 – 17.70%)
= 799

3 EBIT(1 – EITR) = Net earnings – Net earnings from discontinued operations, net of tax + Interest expense, net of portion capitalized, after tax
= 26,804 – 0 + 799
= 27,603

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [27,603 – 13,180] ÷ 27,603
= 0.52

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 27,603 ÷ 129,477
= 21.32%

6 g = RR × ROIC
= 0.32 × 16.86%
= 5.39%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (697,555 × 9.04% – 21,325) ÷ (697,555 + 21,325)
= 5.80%

where:

Total capital, fair value0 = current fair value of Johnson & Johnson debt and equity (US$ in millions)
FCFF0 = the last year Johnson & Johnson free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Johnson & Johnson capital

FCFF growth rate (g) forecast

Johnson & Johnson, H-model

Microsoft Excel
Year Value gt
1 g1 5.39%
2 g2 5.49%
3 g3 5.60%
4 g4 5.70%
5 and thereafter g5 5.80%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 5.39% + (5.80% – 5.39%) × (2 – 1) ÷ (5 – 1)
= 5.49%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 5.39% + (5.80% – 5.39%) × (3 – 1) ÷ (5 – 1)
= 5.60%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 5.39% + (5.80% – 5.39%) × (4 – 1) ÷ (5 – 1)
= 5.70%