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No. of Recommendations: 4
It has been awhile since anyone has done a ranker on JNJ, and since I am
long on the stock (though, as you'll see, it is not a true RM), I thought 
I'd try to put together all the various computations regarding JNJ.

For the Ranker, I've use SGP, PFE and WLA as competitors, and 
for all of them I'm using Q1 2000 data.  For the CKM, I'm using JNJ's 
1999 annual report.  For my DCF assumptions, see below:

									
Financial Analysis	Company Being Evaluated				Competitor #1	Competitor #2	Competitor #3		
									
	                Johnson & Johnson				SGP	         PFE	            WLA		
	                Current Period	Year-ago Period	Year-over-Year  Current Period	Current Period	Current Period		
	                  4/2/00	4/4/99	       Growth		3/31/00 	3/31/00	         3/31/00		
Income Statement . . .									
  Sales	                "7,319 "	"6,739 "	8.6%		"2,406 "	"4,315 "	"3,407 "		
  Cost of Goods Sold	"2,241 "	"2,070 "	8.3%		457 	           490 	           752 	
  Net Income	        "1,314 "	"1,138 "	15.5%		628 	        "1,180 "	   618 	
  Shares Outstanding	"1,411 "	"1,420 "	-0.6%					 
								
Balance Sheet . . .								
  Cash & Equivalents	"4,200 "	"2,585 "	62.5%		"1,772 "	 "3,780 "	"2,426 "	
  Current Assets	"13,976 "	"11,618 "	20.3%		"4,937 "	"10,433 "	"5,876 "	
  Short-term Debt	"1,217 "	"2,489 "	-51.1%		   650 	         "3,717 "	   263 	
  Current Liabilities	"7,128 "	"7,866 "	-9.4%		"3,220 "	 "7,478 "	"3,588 "	
  Long-term Debt	"2,443 "	"1,346 "	81.5%		"1,027 "	    524 	"2,812 "	
					                                                                       Competitors' Average
Margins & Ratios . . .								
  Gross Margins           69.4%	         69.3%	         0.1		  81.0%	           88.6%	  77.9%	     82.5%
  Net Margins	          18.0%	         16.9%	         1.1		  26.1%	           27.3%	  18.1%	     23.9%
  Cash-to-Debt       	   1.15	          0.67	        70.2%		  1.06	            0.89	  0.79	     0.89
  Net Cash	         540.0	      -1250.0   	N/A		  95.0	         -461.0	       -648.4	     -338.1
  Fool Flow Ratio	   1.65	          1.68	        -1.6%	   	  1.23	            1.77	  1.04	     1.35
								
								
	Continue Here							
								
Ranking Rule Makers								
								
1) Brand	        Points (0-1)			3) Financial Direction	Points (0-3)		
Familiarity	        1				Sales Growth	        1		
Openness	        1				Gross Margins	        3		
Optimism	        1				Net Margins	        3		
Legitimacy	        1				Shares Outstanding	3		
Inevitability	        1				Cash-to-Debt	        2		
Solitariness	        0				Fool Flow Ratio	        1		
Humor	                1				Expansion Potential	2		
  Subtotal	        6				  Subtotal	       15		
							
2) Financial Location	Points (0-2)			4) Monopoly Status	Points (0-4)	
Mass Market Habit	2				Gross Margins	        0	
Gross Margins   	2				Net Margins	        0	
Net Margins	        2				Net Cash	        4	
Cash-to-Debt	        1				Fool Flow Ratio   	0	
Fool Flow Ratio	        0				Convenience     	2	
Your Interest	        2				  Subtotal	        6	
  Subtotal	        9						
					                5) Your  Enjoyment	1	
							
	  Total Score	37	Third Tier				
I gave JNJ 1 for inevitability because some of their products are so well-known
that it is hard to avoid them completely.  Otherwise, I think my subjective
criteria are fairly conservative.  Still, JNJ is clearly a tier 3 company.

Here are the Cash King Margins for 1998 and 1999:

	                 1999	1998

Operating Cash Flow	 5677	4895
Capital Expenditures	-1728	-1545
Sales	                27471	23995

Cash King Margin	14.4%	14.0%

The CKM is pretty good (though lower than Net Margins), and like the flowie it is heading in the right direction.

Finally, I attempt to do a DCF similar to the one Bill Mann did in his recent 
recap (on KO).  I know that his articles have caused quite a stir, but for 
some he has clearly struck a chord.  Also, I wanted to see if I could do a 
reasonable analysis with it on JNJ.  

For my assumptions:  I used a 10% growth rate for years 1-10 for JNJ.
That is below its current "long term growth rate" that can be found on the
estimates page, but I think it is reasonable.  I used a 5% growth rate 
beyond year 10.  I used a discount rate of 9%, figuring that JNJ as a 
mature company faces some of the same risks as Coke, and Bill used 9%.
As you'll see, under these assumptions, JNJ is a screaming buy.  However,
if you think it deserves a bit higher discount rate than KO, then it's current
price is closer.  In any case, I don't think under these assumptions that JNJ
is overpriced.  Here are my numbers:

Discounted Cash Flow for											
JNJ											
Growth 1-10	10%										
Growth 11+	5%										
Discount Rate	9%										

Year	          1	  2	  3	  4	  5	  6	  7	  8	  9	  10	YRS 1-10
TTM EPS	          3.09	 $3.40 	 $3.74 	 $4.11 	 $4.52 	 $4.98 	 $5.47 	 $6.02 	 $6.62 	 $7.29 	
Growth Rate	 10%	 10%	 10%	 10%	 10%	 10%	 10%	 10%	 10%	 10%	
Owner Earnings 	 $3.40 	 $3.74 	 $4.11 	 $4.52 	 $4.98 	 $5.47 	 $6.02 	 $6.62 	 $7.29 	 $8.01 	
Discounted by	 91%	 83%	 75%	 69%	 62%	 57%	 52%	 47%	 43%	 39%	
NPV 	         $3.09 	 $3.10 	 $3.10 	 $3.10 	 $3.11 	 $3.11 	 $3.11 	 $3.11 	 $3.12 	 $3.12 	 $31.07 

Owner Earnings Yr 10	 $8.01 										
Growth Rate 11+	         5%										
Owner Earnings 11	 $8.42 										
Capitalization Rate	 4%
Value end of Yr 10	 $210.38 
Discounted @ Yr 10	 39%
Residual NPV	         $81.93 

Intrinsic Value	         $113.00 


OK, any thoughts or corrections would be greatly appreciated.

FoolRM
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