The intrinsic value is calculated using numbers from https://www.advfn.com/.
Formula from http://www.tweedy.com document “Investing for Higher After-tax Returns”.
Intrinsic Value = I/D-G
Where:
I = initial cash (earnings) that you would receive 12 months from today, which will grow at some assumed compounded rate of increase to infinity
D = discount rate
G = the growth rate of the cash (earnings)
Example:
Johnson & Johnson (JNJ)
Intrinsic Value 1:
Calculated using Earnings Per Share (EPS): $3.63
Discount Rate (Large Cap US Stocks): 11%
Growth Rate (Revenue): 8.91%
$3.63/.11-.0891 = $3.63/.0209 = $173.68
Intrinsic Value 2:
Alternate taking into Long-term Debt per share: $2.49
$3.63 - $2.49/.0209 = $1.14/.0209 = $54.54
Intrinsic Value 3:
Calculated using Free Cash Flow Per Share (FCF): $2.32
Discount Rate (Large Cap US Stocks): 11%
Growth Rate (Revenue): 8.91%
$2.32/.0209 = $111.00
8/1/08 Closing Price: $68.10
Compare each valuation to Closing Price: $68.10
Intrinsic Value 1: $173.68 JNJ - undervalued
Intrinsic Value 2: $54.54 JNJ - overvalued
Intrinsic Value 3: $111.00 JNJ – undervalued
