• Wondering if Johnson & Johnson at around US$226.71 is still a fair deal, or if the stock has already run too far for comfort.
• The stock closed at US$226.71, with a 2.4% gain over the last week, a 9.3% gain year to date, and a 54.0% gain over the last year. The past month shows a 3.2% decline that may reflect some cooling or a shift in risk appetite.
• Recent headlines have focused on Johnson & Johnson's ongoing product portfolio, legal developments, and healthcare sector trends. These factors continue to shape how investors think about the stock and help explain why the share price has moved between periods of strength and short term pullbacks.
• Right now Johnson & Johnson holds a valuation score of 3/6, which means it screens as undervalued on half of Simply Wall St's standard checks. The next sections break that down using several valuation approaches and finish with a framework that can help you interpret those signals more clearly.

Approach 1: Johnson & Johnson Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes projections of the cash a company may generate in the future and discounts those cash flows back to today using a required rate of return. The idea is to estimate what all those future dollars are worth in present terms.

For Johnson & Johnson, the model used here is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about $17.0b. Analyst inputs are provided for several future years, and Simply Wall St then extrapolates further free cash flow out to 2035, with 2030 projected at $35.9b. All figures are in $.

On this basis, the DCF model arrives at an estimated intrinsic value of about $374.05 per share. Compared with the recent share price of $226.71, the model suggests an implied discount of roughly 39.4%, which screens as undervalued on this measure.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Johnson & Johnson is undervalued by 39.4%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: Johnson & Johnson Price vs Earnings

The P/E ratio is a common way to value a profitable company because it ties what you pay for the stock to the earnings it currently generates. In general, higher growth expectations and lower perceived risk can justify a higher P/E. In contrast, slower growth or higher risk can point to a lower, more cautious multiple.

Johnson & Johnson currently trades on a P/E of 25.94x. That is above the Pharmaceuticals industry average P/E of 14.78x and slightly above the peer group average of 25.39x. Simply Wall St also calculates a proprietary “Fair Ratio” of 28.41x, which is the P/E level suggested by factors such as Johnson & Johnson's earnings profile, industry, profit margins, market capitalization and risk characteristics.

This Fair Ratio is more tailored than a simple peer or industry comparison because it builds in company specific traits like growth outlook, profitability and risk, rather than assuming all stocks in the same industry deserve the same multiple. With the current P/E of 25.94x sitting below the Fair Ratio of 28.41x, the stock screens as slightly undervalued on this measure.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Johnson & Johnson Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are introduced here as a simple way for you to attach a clear story about Johnson & Johnson to the numbers, linking your view on its future revenue, earnings and margins to a fair value estimate that sits inside Simply Wall St's Community page, updates automatically when fresh news or earnings arrive, and can guide your decisions by comparing that fair value to the current price, whether you lean closer to a higher fair value like US$265.00, a lower one around US$181.77, or something in between such as US$246.46 or US$230.82.

For Johnson & Johnson, however, we will make it really easy for you with previews of two leading Johnson & Johnson Narratives:

Fair value in this narrative: US$252.96 per share

Implied discount vs last close: around 10.4% below this fair value

Revenue growth assumption: 6.54% a year

• Analysts expect the drug portfolio and pipeline, especially in immunology and oncology, to support higher revenue over time while Johnson & Johnson invests heavily in U.S. manufacturing, R&D and MedTech capacity.
• Assumptions include earnings rising from about US$21.0b today to US$26.9b by around May 2029, with profit margins edging up and the stock trading on a P/E of 27.8x, above the current U.S. Pharmaceuticals industry level cited at 15.3x.
• Risks focus on loss of exclusivity for key products like STELARA, tariff pressures and ongoing litigation, which could affect revenue, margins and cash flow if outcomes are less favorable than analysts currently build into their models.

Fair value in this narrative: US$173.55 per share

Implied premium vs this fair value: around 30.6% above this level

Revenue growth assumption: 6.3% a year

• This narrative highlights a well diversified late stage drug pipeline and the Kenvue spin off, which leaves Johnson & Johnson more focused on Medical Devices and Pharmaceuticals but also more dependent on successful drug approvals and adoption.
• Assumptions include revenue growing from a US$84.0b baseline to about US$120.6b by 2028, profit margins around 20% and ongoing share buybacks reducing the share count by about 2% a year, supporting capital returns alongside the dividend.
• Key concerns are unresolved lawsuits, patent expiries for major drugs and uncertainty around how much of the pipeline ultimately turns into profitable products, leading this narrative to a lower fair value estimate than the recent share price.

If these two narratives feel like a useful framework, you can go deeper into the underlying assumptions, risks and valuation methods, or compare them with other community views, to decide which story of Johnson & Johnson lines up more closely with your own expectations for the stock over the next several years. See what the community is saying about Johnson & Johnson

Do you think there's more to the story for Johnson & Johnson? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.