OK, you totally lost me with your example here. I can't understand what you are doing and how and why. For example, if you're doing DCF you shouldn't have to use any multiple. If you're using a multiple, then you're probably doing something closer to Buffettology spreadsheet which is not a real DCF... :/ How about a walkthrough of your calculations? :)
JNJ. Here's how I would do DCF:
Earnings ~15B based on 9 months of 2010 ( =11392/3*4 )
Assuming 10% growth for 5 years and flat after that and 15% threshold discount, current value is 145B. I got this by plugging numbers into moneychimp.com
Since the market cap is ~170B, we won't get the threshold return (15%) by buying JNJ here.
Assuming 10% growth for 10 years and flat after that and 15% threshold discount, current value is 182B. With this assumption we would get 15% by buying JNJ here.
IMHO, 10% growth for 10 years is too optimistic for such a large cap, so for me JNJ is a lukewarm buy here based on DCF. Using other approaches though (Buffettology spreadsheet, P/E, etc.), it is a good buy. Myself, I hold a position, but I'm not buying more here. |
