now all we have to do is wait til it gets to 85, then I'll pounce on the investor to buy from me.You have a great analysis as to why it should get there but trying to get the horse to drink the water is another matter.
what were your assumptions about how much the growth will cost? that's the thing i never see in these "earnings/ growth" models. if JNJ earns and reinvests $1, and the investment bears 15 cents per year forever, the $1 *became* the annuity, where the $1 lump sum and the $1.50 present value BOTH seem to be included in the fair value calc.
notice that buffett himself takes pains to say that the _value_ of growth has to be considered very carefully. hence his obsession with ROE. In my view, you need to either use full growth and (dividends + net buybacks), or owner earnings and a much smaller premium for the value of the growth.
berkshire hathaway itself is a great example of this. if it grows 10% per year for the next decade, discounting the annuity (at 10%) yields a PV of 10* current earnings. but since the growth consumes 100% of the earnings the company takes in, the tenth year earnings INCLUDES the amortized reinvested year 1-9 earnings. PV would be more properly 1* current earnings- only the tenth year are distributable to owners. i'm not saying BRK is worth 1* earnings, i just picked the numbers to make calculations easy.