Johnson & Johnson (JNJ) Valuation

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Company Profile (obtained from Google Finance): Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. Johnson & Johnson has more than 250 operating companies. The Company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The Consumer segment includes a range of products used in the baby care, skin care, oral care, wound care and women’s healthcare fields, as well as nutritional and over-the-counter pharmaceutical products. The Pharmaceutical segment includes products in the therapeutic areas, such as anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology. The Medical Devices and Diagnostics segment includes a range of products distributed to wholesalers, hospitals and retailers. In October 2008, the Company acquired HealthMedia, Inc. In December 2008, it acquired Omrix Biopharmaceuticals, Inc.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 5/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last updated 10/2/09
• MG Value = $98
• MG Opinion = Undervalued
• Value based on 3% Growth = $60
• Value based on 0% Growth = $35
• Market-implied growth rate = 2.99%
• Net Current Asset Value (NCAV) = $5.67
• Current Ratio = 1.78
• Price to Book Ratio = 3.56

Key Data:

Balance Sheet – 6/28/2009

• Current Assets    $35,494,000,000
• Current Liabilities    $19,886,000,000
• Total Debt    $8,179,000,000
• Total Assets    $87,438,000,000
• Intangible Assets    $14,720,000,000
• Goodwill    $14,152,000,000
• Total Liabilities    $41,191,000,000
• Outstanding Shares    2,754,340,000

Earnings Per Share – Diluted

• 2009 (estimate)    $4.38
• 2008    $4.57
• 2007    $3.63
• 2006    $3.73
• 2005    $3.35
• 2004    $2.74
• 2003    $2.40
• 2002    $2.16
• 2001    $1.84
• 2000    $1.61
• 1999    $1.39
• 1998    $1.02

Earnings Per Share – Modern Graham

• 2009 (estimate)    $4.13
• 2008    $3.87
• 2007    $3.40
• 2006    $3.15
• 2005    $2.74
• 2004    $2.34

Valuation History:

• 10/2/09 – Value $97, Actual Price $59.79, Undervalued & Enterprising
• 6/28/09 – Value $100, Actual Price $56.60, Undervalued & Defensive
• 7/29/08 – Value $69, Actual Price $68.55, Fairly Valued & Defensive
• 3/10/08 – Value $66, Actual Price $61.51, Fairly Valued & Enterprising
• 8/28/06 – Value $81, Actual Price $65, Undervalued & Enterprising