• Shares are down ~60% since late 2024 / early 2025

• The stock trades at ~11x EPS guidance with an unlevered balance sheet

• Historic valuation + footwear comps + Skechers 2025 buyout price = 14-18x P/E

• Growth is slowing in a key brand (HOKA), but international growth is early innings

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 09/01/26 — Microcap compounder at Rave Restaurant ($)

• 08/25/26 — Cal-Maine is a clean P/B mean reversion idea

• 08/18/26 — Stars aligning for a sale at Monro ($)

• 08/11/26 — Roll-up story at Shift4 Payments

• 08/04/26 — Inflection at beaten down MarketWise ($)

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Quick Value

Deckers Outdoor Corp (DECK)

Several retailer stocks are looking beaten down this year. At this point, tariff impacts are well known and consumer spending has been resilient.

So why are some of these stocks down 30-50% or more?

Here are my notes on Deckers Outdoor (DECK) which is down 23% YTD to $83.

Background

Deckers Outdoor (DECK) owns and operates 3 footwear brands: HOKA in running shoes, UGG in comfort/lifestyle, and Teva in the sandals category.

It’s an asset-light “brand management” model where brand ownership, product development, marketing to consumers, etc. live with Deckers; but products are manufactured by third-parties.

Footwear is a $120bn retail value market in the US and $375-400bn internationally (depending on the source).

Notable footwear companies include:

• Skechers — $9bn revenue (57% wholesale)

• Deckers (DECK) — $5.5bn revenue (58% wholsale)

• Crocs (CROX) — $4bn revenue (48% wholesale)

• On Holding (ONON) — $3.7bn revenue (60% wholesale)

• Steve Madden (SHOO) — $2.5bn revenue (66% wholesale)

• Birkenstock (BIRK) — $2.3bn revenue (61% wholesale)

• Wolverine World Wide (WWW) — $1.9bn revenue (74% wholesale)

These 7 competitors have total revenue around $29bn and I’m ignoring some larger players with a broader mix of footwear and apparel (like Nike, Adidas, and Puma).

Why it’s interesting…

In short — Deckers is a “busted GARP” name with slowing growth and an intense re-rating since late-2024 (shares are down ~60% since a late 2024 peak of $200). If expectations have adequately reset (and fundamentals hold up), then shares could be really attractive here.

First, a look at the fundamentals…

Fundamentally, DECK was/is one of the purest GARP stocks I’ve ever seen. Revenue and EPS grew 13% and 30% annually from FY17 to FY26 in what looks like straight-line growth:

A few takeaways:

• High level results look clean, but there were periods of accelerating and decelerating growth along the way (though only 9 total quarters of YoY revenue decline in 20 years is very consistent!)

• FY17 margins were a 20-year low and likely an anomaly — DECK had mid-teens margins for most of the 2010’s

• Net cash position has grown in dollars, but it’s roughly the same amount relative to the size of the company today as it has been historically (20-30% of sales or 10-15% of market cap)

• Capital allocation historically split between buybacks (~2/3rds of capital) and accumulating cash on the balance sheet (1/3rd of capital) — from FY17 to FY26, FCF totaled $5.2bn, of which $3.4bn was spent on buybacks and $1.65bn was added to net cash

• Share count declined nearly 30% since FY17 from 192m to 136m today — management has a good track record of ramping buybacks when shares are cheap and pulling back when they get expensive

So why are shares down 60% since the beginning of 2025?

A few items are contributing to the decline:

1. Slowing growth — I assume this is the largest factor to the current weakness. HOKA was growing 20%+ and it’s now growing 10% (or maybe less). Why? Likely a mix of brand maturity, competition, product launch timing, etc.

   

2. Earnings decline — Technically, EPS is still growing modestly, but that growth is coming entirely from buybacks. Pre-tax income fell by ~8% in Q1 FY27 from higher SG&A costs.

   

3. Tariffs — Initially, tariffs were guided at 10% and then increased to 12.5% in Q1 FY27. Also, there was zero tariff impact in the P&L as of Q1 last year, so the YoY comparison is hurting right now (though they’re signaling the biggest hit is behind them).

4. Starting valuation — Shares of DECK were arguably overvalued for much of 2023-2024 as shares traded north of 30x earnings while HOKA was growing +50%. This starting valuation is probably compounding the pain as expectations reset.

The big question becomes — are these factors temporary or not?

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I don’t have any unique insights that brand revenue will start to inflect soon, but I do know that revenue growth has slowed/stalled at times in company history (most of 2012-2018):

During those periods, shares would trade down to the lower band of historic valuation multiples until revenue or earnings growth rebounded. (Sort of looks like a mean reversion idea under this lens.)

Interestingly, while HOKA brand sales may be maturing/slowing, it looks like international markets are growing nicely and probably still early innings (5 years of 20%+ revenue growth).

As for the declining pre-tax earnings, those look a bit more intentional.

Here is some CFO commentary on the rising SG&A costs:

…investments in this fiscal year are focused on fortifying the foundation of our business and supporting the continued growth of our brands, positioning us to begin delivering operating expense leverage in fiscal year 2028 and beyond

Sounds like overhead expenses should level off going into next year.

So what’s the outlook from here?

Guidance for FY27 (ends 3/31/27) calls for:

• Revenue growth of 7-8% ($5.89bn mid-point vs. $5.47bn in FY26)

  • HOKA = low-double-digit growth

  • UGG = mid-single-digit growth

• EPS growth of 5-7% ($7.35-7.50 vs. $7.02 in FY26)

• Share count for EPS assumes 80% of FCF used on buybacks

Looking at FY28 and beyond. Estimates call for revenue growth of ~7% (basically at the low end of FY27 guidance).

Here’s some math on potential FY28 earnings…

If we extrapolate Q1 FY27 growth of 6% (below consensus) into FY28, that’s $6.25bn revenue

• Assume flat gross margins (56.5%) = $3.53bn gross profit

• Hold SG&A essentially flat ($2.1bn) = $1.43bn operating profit

• Taxed at 23% = $1.1bn net income

Let’s say buybacks total $2bn (~90% of net income) from today through FY28 at a price of $90-100 = 21m shares repurchased over 7 quarters for an ending share count of 115m.

That $1.1bn net earnings = $9.50 EPS by yearend FY28 or 8.7x P/E at today’s $83 per share.

Hmm…

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Alright, so what are shares worth?

Retailers in general are getting killed in 2026 (LULU, NKE, ONON, and DKS are all down 30-50% YTD as of this writing).

The better retailers (clean balance sheet, margins at mid-teens or better, and growing revenue) trade at 10-15x earnings. So DECK looks undervalued on a relative basis.

Historically (over 20 years), DECK trades between 14-18x earnings with a median multiple around 17x earnings.

Perhaps the best comparison is Skechers which was taken private by 3G Capital in September 2025 at ~$9.6bn (around 15x earnings).

Skechers is a clean comparison for Deckers — They operated a single brand across various footwear styles, had consistent mid-single-digit sales growth, a net cash balance sheet, similar wholesale/DTC mix, and most importantly, Skechers finished its public life as an “international growth” story (international footwear markets are very large and seen as a long growth runway).

International sales went from 46% in 2016 to 62% at the time they were acquired in 2025 (a 16% CAGR over 9 years).

Deckers currently gets 42% of sales from international markets (where Skechers was in 2016), but those regions are growing 10-20%+ with plenty of room to expand further.

As an added reference, here were the comparable multiples from the Skechers 2025 merger proxy:

To summarize — Most of these valuation references point to the same 14-18x earnings range.

Here are my rough valuation estimates:

• Upside — Even a slower level of 5-6% revenue growth is quite good (that’s what Skechers was putting up). At 16x $7.50 FY27 EPS = $120 per share or 45% upside.

  • If my FY28 estimates materialize ($9.50 EPS), then at 15x = $143 per share or 72% upside.

• Downside — DECK’s lowest earnings multiple in 20 years was 4.5x and 2 standard deviations below median is 7x earnings (about where CROX trades today). Let’s say revenue misses while opex investments continue and EPS misses at $7. At 7x = $49 per share or 40% downside.

That’s a ~1.2-1.8x upside/downside ratio.

I’m probably being overly punitive in this downside scenario, but things can get irrational when there are fears a consumer brand is going out of favor.

Summing it up…

Given the Skechers buyout last year and recent trading multiples, maybe DECK is a takeout candidate here?

With shares trading at ~11x earnings + an unlevered balance sheet, management could continue plowing all FCF into buybacks to engineer 10%+ annual EPS growth for years (likely more if operating leverage kicks in). And that’s without a “return to growth” for HOKA.

For now, I’m keeping this one on my watchlist.

I like the idea and feel there’s a good chance investors will look back in a few years and call this timeframe a “no brainer.” I’d like to review a few other retailers (DKS is on my list) to get a sense for what others are seeing.

Disclosure: no position in DECK

Resources:

• DECK FY26 10-K

• DECK Q1 FY27 10-Q and earnings release

• Skechers FY24 10-K

• Skechers merger proxy

• Operates one of the best business models on the planet

• Shares trade at 8x EBITDA with tons of cash and zero debt

• Not a deep value idea: solid fundamentals, growing, strong balance sheet

• Formerly a turnaround + management change story, now solidly a GARP idea

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 08/25/26 — Cal-Maine is a clean P/B mean reversion idea

• 08/18/26 — Stars aligning for a sale at Monro ($)

• 08/11/26 — Roll-up story at Shift4 Payments

• 08/04/26 — Inflection at beaten down MarketWise ($)

• 07/27/26 — Looking at the Resideo + ADI Global spin-off

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• Shares are down 27% over the past year coming off previous cycle peak

• Dominant industry player with fortress balance sheet (net cash 20% of market cap)

• Shares are trading near the low-end of historic valuation range (P/B) while approaching cycle bottom

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 08/18/26 — Stars aligning for a sale at Monro ($)

• 08/11/26 — Roll-up story at Shift4 Payments

• 08/04/26 — Inflection at beaten down MarketWise ($)

• 07/27/26 — Looking at the Resideo + ADI Global spin-off

• 07/20/26 — Jockey-led holding company at HCI Group ($)

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Quick Value

Cal-Maine Foods Inc (CALM)

A friend suggested I look at Cal-Maine (CALM) as a cheap cyclical making an effort to diversify into less cyclical earnings streams.

Here are my notes…

Background

Cal-Maine (CALM) is the largest egg producer in the U.S. with 50 million egg-laying hens and 1.2 billion dozen eggs sold in their fiscal 2026 year (ending 5/30).

CALM is a massive, vertically-integrated egg producer with ~2x producing hens compared to the #2 player(s). They own $1.3bn+ in breeding facilities, hatcheries, production facilities, processing & packaging, feed mills, prepared food facilities, and 34,000+ acres of owned land.

[Side note — this reminds me of Somnigroup SGI) and their industry dominance in the bedding industry.]

Quick overview of the egg industry

Eggs are an excellent source of low-cost protein and have very stable demand.

In the U.S., shell eggs are a ~$16bn industry as of 2025 with the ten largest producers owning 57% of production capacity (CALM 2025 10-K).

This industry is highly cyclical with large price swings tied mostly to supply-side swings (i.e. avian flu / HPAI outbreaks and producer responses to high/low egg prices).

Producers can throttle supply quickly by “hanging onto” older hens longer or breeding more egg-laying hens which reach production-maturity in just a few months.

When supply is tight, prices spike and returns (i.e. earnings) are phenomenal; and vice versa when supply is plentiful. Egg production has a very short cycle time on the supply side (quick production ramp-up and low inventory positions).

Fortunately, demand is stable with consumption (volume) flat-to-increasing over many decades:

It’s also a capital-intensive business:

Producers need baby chicks to grow or replenish their egg-laying flock which they breed on farms and hatch in computer-controlled hatcheries. Once at maturity, they are placed into their laying flock.

After eggs are produced, they need to be processed and packaged at onsite facilities before they’re sold.

This sounds like a lot of capex, and it is: CALM runs at 5-7% of sales in a typical year.

Eggs are sold as either conventional shell eggs (i.e. laid by hens in wire cages) or specialty eggs which carry higher prices (i.e. free-range, cage-free, organic, pasture-raised, etc.). You can read about the differences here.

Note: specialty eggs may have higher margins that are less dependent on market-based pricing formulas, but they are still somewhat cyclical.

In FY26, Cal-Maine sold 46% conventional shell eggs, 37% specialty eggs, 8.4% prepared foods, and 8.5% “other” items (co-pack shell eggs, hard-cooked eggs, etc.).

Why it’s interesting…

Cal-Maine looks like a plain vanilla “mean reversion” bet with a few other attributes that make it attractive. It’s a simple pitch.

Here’s what I like about this one…

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1) Dominant player in cyclical industry

Huge scale & vertical integration advantages make CALM the (likely) low cost producer in this industry which is critical when market-pricing swings as wildly as eggs do.

Over 10+ years, CALM continues to grow overall production (both organically and through acquisitions) while increasing their share of industry volumes.

2) Balance sheet is rock solid

The best cyclical stocks have a combination of scale/cost advantages (check) and industry-leading balance sheets (check).

• As of FY26, net cash & investments totaled $924m or ~$20 per share

• That represents 35% of book value and 23% of the current market cap (i.e. a substantial amount)

• Historically, net cash consistently represents 20-40% of book value (i.e. a conservatively managed balance sheet is part of the operational plan)

3) Consistent book value growth & valuation

I may buy shares solely on the basis of this long-term P/B chart:

Despite cyclicality, CALM is consistently growing book value per share (from $2 in Sep 2006 to $56 in May 2026 = ~18% CAGR).

Price-to-book is likely the most appropriate valuation metric given the capital intensity and persistently defensive cash position. P/B ranges from 1.5-3x with a median of 2.1x over the past 20 years (this timeframe incorporates at least a handful of industry cycles).

Is a 2.1x P/B multiple justified?

I sure think so…

Here’s a chart of ROEs: (1) on a rolling 5-year basis; and (2) as a lifetime average starting from 1997 (i.e. nearly 30 years of history):

The lifetime average is an attempt to strip out the cyclicality entirely while the rolling 5-year average smoothes it a bit.

Takeaway: It paints a clear picture of consistently high-teens ROEs with periods of 20-30%+ near cycle peaks.

As a quick recap: book value is growing and cash consistently represents a large portion of book value.

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4) Capital allocation & cash flow

During boom years, the company socks away cash for a rainy day (i.e. bolstering their already stellar balance sheet).

As excess cash piled up post-COVID, they’ve added to their capital allocation priorities:

• Buybacks — in early 2025, they collapsed a supervoting dual share structure and launched a $500m buyback authorization and started executing at prices in the mid $70’s.

• Dividends — a variable payout policy sends one-third of quarterly net income to shareholders as a dividend with a caveat that dividends are only paid after the company is profitable on a cumulative basis from the date of the last quarterly payout (this is a brilliant approach for a cyclical business).

• M&A — management is prioritizing diversifying into “less cyclical” earnings streams (prepared foods became a segment in FY26 and now has $240m+ annual revenue)… in FY26, they spent $260m to acquire branded food products company Echo Lake Foods.

When asked about the M&A environment on Q4 FY26, management said:

We don't know how other people sit bottom line, but we do know that we have more growth opportunities than ever before when you think about M&A from Conventional Eggs to Specialty Eggs, Prepared Foods, the ingredients, liquid eggs that go into Prepared Foods and brands, particularly around Prepared Foods, all this gives us a lot more opportunity. But I just want to reemphasize that our thinking stays egg-centric. We're thinking about bolt-on and tuck-in type M&A when we look at it.

5) Cycle timing

This Q4 FY26 CEO commentary sums up the business and current operating environment well:

The key takeaway is that the company is managed with this sort of cyclicality in mind which allows them to “play offense” while others are hunkering down. Q4 FY26 net income was negative for the first time since 2021 as prices collapsed.

Management noted prices started Q1 FY27 ($0.83) even lower than Q4 ($1.07) before recovering at the tail end of the quarter and into Q2 ($1.39).

This likely implies another quarter of losses in Q1 before a potential recovery going into Q2.

So what could shares be worth?

There are ~47m shares outstanding x $84 = $3.95bn market cap. Net cash and investments are $924m for a ~$3bn enterprise value.

While the company doesn’t have a stated financial goal of growing book value per share, I’ll use that as my basis for valuing this business since it requires significant capital investment and carries lots of cash.

• Upside — Using current book value of $56 per share at 2.1x P/B = $118 per share or 40% upside.

• Downside — At 1.3x P/B (CALM’s 20-year historic low multiple) = $73 per share or 13% downside.

This works out to a 3x upside/downside ratio which is fairly asymmetric.

It also gives zero credit for recent investments/acquisitions or future book value growth and capital allocation.

Clearly, it could trade lower than 1.3x book value and this doesn’t account for potential declines in book value in Q1 FY27.

Summing it up…

CALM looks one of the cleaner mean reversion ideas I’ve come across in a while. It’s a dominant cyclical trading near the low end of its historical valuation range with a fortress balance sheet and (potentially) nearing a cycle low.

There’s always a risk the cycle bottom is farther away than anticipated, but it looks like an industry where supply/pricing normalizes relatively quickly.

I don’t own shares yet, but I’ll likely take a starter position in the low-to-mid $80’s with an investment horizon of 4-6 quarters as pricing recovers and the valuation gap closes.

Disclosure: no position in CALM, but I may purchase shares this week.

Resources:

• Jan 2026 investor presentation

• Q4 FY26 earnings presentation

• 2025 Echo Lake acquisition slides

• FY26 10-K

• Stars aligning for a sale — turnaround exec, big incentive package, activist shareholder, and a formal strategic review process just kicked off

• A recent comp just sold which highlights the (potential) value here

• Shares are heavily beaten down: -41% YTD and -80% over 5 years

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 08/11/26 — Roll-up story at Shift4 Payments

• 08/04/26 — Inflection at beaten down MarketWise ($)

• 07/27/26 — Looking at the Resideo + ADI Global spin-off

• 07/20/26 — Jockey-led holding company at HCI Group ($)

• 07/13/26 — Fubo + Hulu Live merger + management change

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• Shares down 50% over the last 5 years and 65% off 2025 highs

• Lapping a large (and levered) acquisition from mid-2025

• Revenue still growing (20%+) but EPS growth slowing

• Stock trades at ~8x earnings and ~7x EBITDA

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 08/04/26 — Inflection at beaten down MarketWise ($)

• 07/27/26 — Looking at the Resideo + ADI Global spin-off

• 07/20/26 — Jockey-led holding company at HCI Group ($)

• 07/13/26 — Fubo + Hulu Live merger + management change

• 07/06/26 — Recent “quality” spin-off at Mobility Global ($)

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Quick Value

Shift4 Payments Inc (FOUR)

This one has been sitting on my watchlist for a while now as the entire payment processing industry is getting clobbered over the past year…

Finally sat down to sort it out. Here are my notes…

Background

Shift4 operates in a niche corner of the global payment processing industry.

Some history:

• 1999 — The company was founded by Jared Isaacman and originally operated as United Bank Card

• 2012 — Rebranded as Harbourtouch

• 2017 — Acquired Shift4 Corporation and rebranded under that name

• 2020 — Came public via traditional IPO at $23 raising $550m+ by yearend

• 2021-2025 — Spent $3.7bn on acquisitions, founder stepped down and replaced with new (internal) CEO as of mid-2025. Shares went from $65 to $59.

• 2026 — Digesting levered acquisition, other payments stocks declining, cleaned up founder shares / Up-C structure. Shares went from $59 to $43

It’s a roll-up story having completed dozens of acquisitions since it’s founding, most of which were rebranded under the Shift4 name. With a 2020 IPO, perhaps there was a bit of pandemic hype + unwind in here too.

A (very) brief primer on payment processing

When you go to the store and swipe your credit card, there’s a series of steps taking place behind the scenes which eventually send money from your account (consumer) into the store’s account (merchant).

Those “steps” involve a complex value chain ranging from: card issuers (banks), card networks (Visa, Mastercard, etc.), merchant acquirers and processors (GPN, FISV), payment gateways (Stripe, PYPL, XYZ), and hardware/software providers (NCR, DBD, TOST).

Traditionally, most of these steps operated as separate functions, but over the past decade+ they’ve collapsed with companies offering several functions as a single package (an “integrated” provider).

Example: a restaurant using Toast will pay upfront for Toast’s point-of-sale hardware, a monthly subscription for Toast’s software package, and they’ll be required to use Toast for payment processing.

These companies make money in a few ways: hardware as a one-time upfront cost, software on a recurring subscription-basis, and payment processing as a small fee on total transaction volume.

Consumer spending at ~$22 trillion annually is more than 70% of the U.S. economy, making this a large and growing market. Adyen estimates the global market for transaction volume at nearly $40 trillion annually.

It’s a concentrated industry with the top 10-15 players having 80-85% percent market share of U.S. transaction volume.

Since this industry is riding the wave of consumer spending (which is growing), you would think these stocks deserve to trade at big premiums with solid growth prospects.

Over the past 20 years or so, relatively new tech-based competitors have emerged and taken large market shares. Stripe, Adyen, Toast, and Shopify were all started between 2006-2011.

Stripe, Adyen, and Shopify represent a large portion of the growing e-commerce / online processing volume (referred to as “card not present”) and Toast dominates in the restaurant vertical.

Back to Shift4…

There are a few “mass market” payment processors (mostly FISV and GPN) with others taking a vertical-specific focus: Stripe/Adyen/PayPal (card not present), Toast (SMB restaurants), NCR Voyix (enterprise restaurants with white label processing), Square (basic SMB), etc.

• Card-present business model — Shift4 is focused on complex “card-present” (i.e. physical venue) processing. They cater to restaurants, hotels, sports & entertainment venues, etc. with a stated objective of avoiding the more competitive basic SMB / singe-location merchants.

• Revenue streams — The business operates as a single segment with 3 different revenue streams: (1) payments-based revenue from processing transactions; (2) subscription revenue from software; and (3) tax-free shopping (TFS) revenue which is a VAT tax refund tied to international shopping

• Revenue mix — More than 82% of revenue comes from payment processing and there’s a large international mix (26% of Q2 2026 sales came from non-US currencies).

Think of Shift4 as targeting a specific (less competitive) corner of the payment processing industry.

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Why it’s interesting…

Shift4 is a levered roll-up quickly approaching a point of critical mass (and perhaps already there).

It has the fundamental backdrop you’d expect from a roll-up…

Revenue, EBITDA, and net earnings are all significantly higher today than at the time of the 2020 IPO.

Yet the stock (at $43) trades at ~8.2x estimated 2026 EPS.

So what’s the catch?

Three things catch my eye here:

1. First, the company recently made a large acquisition (Global Blue) which pushed net leverage from 2.4x to 3.6x.

2. Second, despite the revenue and earnings growth, there is some messiness here: outspending cash flow for years, a complex controlling shareholder structure (formerly an Up-C), FX is now meaningful, a fair amount of “add back” expenses to non-GAAP results, etc.

3. Third, the entire industry is in a major drawdown right now with competitor stock prices down 30-40% over the past year — some of this is macro and some stock-specific.

4. EPS isn’t keeping pace with the underlying revenue/EBITDA growth — they expect 2026 EPS of $5.25 at the midpoint vs. $5.17 in 2025 (~2% growth), this also implies declining EPS YoY in 2H 2026.

So where are the bright spots?

A few things jumped out to me which could make this a compelling long:

1) Niche business

First, this is a niche business when compared to the “mass market” merchant acquirers like GPN/Worldpay and Fiserv.

Like Toast or Shopify, it’s an integrated platform where customers commit to using Shift4 hardware, software, and payment processing bundled together. So it’s a very sticky recurring revenue base with direct customer relationships.

They also focus on complex multi-location situations, so they’re actively avoiding the more competitive single-location SMB space (think: a single coffee shop with a Square reader).

This slide outlining the “alternative options” for a sports/entertainment venue does a nice job highlighting the multiple payment touchpoints covered at a “complex” customer:

A 2025 investor day presentation is filled with nuggets describing the unique aspects of this business:

Customer acquisition via M&A:

For context, Toast spends right around $17,000 per location in sales and marketing alone, meaning that our acquisition-led growth strategy is over 5x more efficient than almost all of our SaaS and payment competitors that use PPC and traditional advertising channels instead of buying a sticky base of merchants using an ancillary product that you can cross-sell software and payments into.

Market leader in “complex card present” situations:

…we can do complex card present better than anyone else. And it’s way harder than card-not-present. I mean card-not-present, not taking anything away from Adyen, Stripe, for the others, but it’s a lot easier when you don’t have physical devices, encryption, which add PCI certification standards, which vary based on region and debit networks, it’s really hard. And we’re very good at this…

Quality of customer base:

…focus increasingly upmarket on the quality of businesses that we serve, whether that's larger restaurants or quite frankly, the smallest hotel is bigger than most of the restaurants that we serve, and then the small stadium is bigger than a lot of the hotels that we serve. So quality of customer actually helps to ensure that they're going to stick around for you, which isn't always the case if you're serving 100% SME restaurants.

Global Blue acquisition…

The mid-2025 acquisition of Global Blue adds an entirely new set of customers (luxury retailers), revenue streams, and international markets with very real cross-selling opportunities.

They are the #1 provider of that tax refund services across an incredible base of merchants that I’ll talk about in just a second. When I say number one, it’s like 80% market share and the #2 has 20 and is losing.

It’s early innings (they’re about to lap the first full year comparison in Q3 2026), but this acquisition should pay off long-term. Plus, Global Blue was already consistently growing >20% and traded at a premium valuation before Shift4 acquired them (GB 2025 20-F).

For context, this acquisition was roughly one-third of Shift4’s pre-acquisition revenue and EBITDA:

2) Financial profile

The acquisition strategy seems to be working, even in the face of leverage / complexity. ROIC improved substantially since going public as earlier M&A starts to pay off. (Note: my calculation includes stock-based comp and restructuring costs.)

Under the surface here, management has been buying back lots of stock and they took measures to collapse the complicated Up-C structure with the controlling shareholder.

This works out to a ~10% buyback over the past 5 quarters and a single share class structure within 2 years.

Then, there’s the medium-term targets:

Specifically, the “sit on our hands” and do nothing approach should lead to high-teens revenue and EBITDA growth from 2025-2028:

From a cash flow standpoint, they’ve made real progress in the last few years; but there are still several items eating into those cash flows (residual commission buyouts for distribution partners and noncontrolling interests).

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3) Valuation

If we include the share count impact from the 2028 convertible preferred, there are ~90m shares outstanding x $43 = $3.9bn market cap. Add ~$4.2bn net debt (ex-preferred) for an $8.1bn enterprise value.

2026 mid-point guide calls for:

• $2.5bn revenue less network fees (GRLNF) or 26.5% YoY growth (organic growth was 11% in both Q1 and Q2 2026)

• $1.17bn EBITDA or ~20.5% growth

• $470m adjusted free cash flow (they exclude acquisition/restructuring costs)

• $5.25 EPS or 2% growth

So we have a stock trading at 8.2x earnings and 6.9x EBITDA with 3.6x leverage.

Note: this guidance was lowered during Q2 due to macro / Middle East travel impacts… the EPS guide was taken down from $5.50-5.70 to $5.15-5.35.

How does that compare to peers?

No 2 business models are entirely alike, but you’ll notice a cluster of stocks trading at 5-7x EBITDA and a cluster at 10x EBITDA or higher.

The first group are mostly legacy players with slower growth and high leverage; the second group are faster growing with better balance sheets:

You’ll notice Shift4 is lumped in with the first group here which seems questionable compared to slower-growing mega caps like FISV, GPN, and FIS.

Over the past 3 years, Shift4 trades at a median multiple of 17x earnings and 8.6x EBITDA:

What could shares be worth?

• Upside — Assuming they can return to consistent 20%+ EPS growth in FY2027 = $6.30 per share. At 12x earnings (a slight discount to unlevered peers LSPD/PAR) = $77 per share or 80% upside.

• Downside — With EPS declining in second half of 2026 and another acquisition on the way, shares could drift toward low-end peers… at 6x $1.2bn EBITDA = $7.2bn EV or $3bn market cap. That works out to $33 per share or 23% downside.

This works out to a 3.5x upside/downside ratio which is sizable.

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Summing it up…

There’s a lot going on here… and I have to assume that’s part of the equation for the current trading level.

Whether you believe leverage is too high or not; the market is clearly grouping peers into a levered bucket and an unlevered bucket with the latter group trading at higher multiples.

There’s no official leverage target per management and not even a commitment to bring this down overtime. In fact, they snuck another acquisition into the subsequent events section of the latest 10-Q, and it was a sizable deal at $316m too (~8% of market cap).

Also, I would expect earnings to be growing faster with revenue growth at more than 20%… Guidance implies earnings are going to decline YoY in the second half of 2026.

Maybe these things are what make it an attractive buy at these prices?

Perhaps the thing I’m struggling with most, and the reason I’m just going to watch this one for now, is what makes it work from here?

The overall picture is similar to Gen Digital (GEN) during the SaaS sell-off… It had mid 3x leverage and was trading at a single digit earnings multiple with solid revenue growth. A key difference was that earnings were (and remain) growing at 10-20% per year while things are slowing down at Shift4.

If I don’t have a catalyst, then I at least want earnings and FCF to be on the up-and-up…

Disclosure: no position in FOUR, but adding to my watchlist.

Resources:

• 2020 IPO prospectus

• 2025 10-K

• 2026 Q2 10-Q

• 2025 investor day presentation

• Came public during 2021 SPAC boom

• Experienced COVID-era supernormal earnings

• Fundamentals finally bottoming in 2025; 2 quarters of improving results

• Shares look cheap at 6x cash flow, 9% dividend yield, and net cash position

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 07/27/26 — Looking at the Resideo + ADI Global spin-off

• 07/20/26 — Jockey-led holding company at HCI Group ($)

• 07/13/26 — Fubo + Hulu Live merger + management change

• 07/06/26 — Recent “quality” spin-off at Mobility Global ($)

• 06/29/26 — Somnigroup’s vertical integration acquisition spree

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Read more

• Upcoming spin-off of 2 disparate businesses

• Several recent “clean up” catalysts now completed

• Shares trading at 9.6x EBITDA after spin-off stranded costs

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 07/20/26 — Jockey-led holding company at HCI Group ($)

• 07/13/26 — Fubo + Hulu Live merger + management change

• 07/06/26 — Recent “quality” spin-off at Mobility Global ($)

• 06/29/26 — Somnigroup’s vertical integration acquisition spree

• 06/23/26 — Guide to GoodCo / BadCo situations (a look at Tripadvisor) ($)

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Quick Value

Resideo (REZI)

When I wrote my “guide to spin-offs,” I mentioned lack of overlap / disparate businesses as a common reason for companies to pursue a spin:

Maybe there’s just honest-to-goodness lack of overlap in the business. This is perhaps the most fertile hunting ground for spin-offs (and the best reason for companies to do them in my opinion).

This feels like one of those moments.

Resideo (REZI) is set to spin-off their wholesale distributor in just a few days.

Let’s take a closer look…

Background

Resideo (REZI) was spun out of Honeywell in 2018 (Form 10 filing).

At the time, Honeywell packaged up their “residential comfort and security solutions” manufacturing business alongside a wholesale distributor of electrical and security products, and spun it off.

Shares underperformed the market since then (for reasons we’ll touch on later), and now REZI is separating the 2 businesses it was originally given.

There are 2 segments pre-spin.

1. Products and Solutions (RemainCo) — Manufacturer of fire alarms, thermostats, smoke and carbon monoxide detectors, water heater components, dehumidifiers, etc. Lower revenue but higher margins.

2. ADI Global Distribution (SpinCo) — Distributor of electrical, fire, and safety products used in commercial buildings and residential homes. More revenue at lower margins.

These are very different businesses so the spin-off rationale makes plenty of sense here.

At the time of the 2018 spin, Honeywell left Resideo with a few parting gifts:

1. Resideo could continue using the Honeywell brand name for certain products as part of a 40-year trademark agreement which includes a 1.5% royalty fee on those product sales. These royalties were $16-18m per year from 2023-2025, so they represent a meaningful portion of sales ($1bn+).

2. Similar to another Honeywell spin (Garrett Motion) Resideo was left with a 25-year “indemnification and reimbursement” arrangement. Under this agreement, Resideo pays Honeywell up to $140m per year for environmental liabilities incurred prior to the spin. Think of this as an “additional” $3.5bn debt at the time of the 2018 spin (25 years x $140m).

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Pre-Spin Fundamentals

A quick look at pre-spin financials helps us understand the story a bit better…

Some items to note here:

• 2019 — first year post-spin included some “botched” transition items which hurt results out of the gate (share price suffered too)

• 2020 — issued $279m equity at $15 per share to shore up the balance sheet

• 2021 — acquired First Alert from Newell Brands inside the manufacturing business portfolio for $593m (added ~$400m annual revenue)

• 2024 — acquired Snap One Holdings for $1.4bn inside the distribution business (added $1bn+ annual revenue)

• 2025 — terminated indemnification agreement with Honeywell for $1.59bn (this was the primary driver for negative FCF that year)

In total, from 2019-2025, REZI generated ~$1.96bn in FCF and raised $780m in common + preferred equity ($2.74bn sources of cash)… of that amount, they spent $1.59bn to terminate the indemnification agreement and ~$2.1bn on M&A.

As of today, there are ~155m fully diluted shares outstanding x $35 share price = ~$5.4bn market cap. Net debt (included preferred equity as debt) is $3.2bn for an $8.6bn enterprise value.

RemainCo (Resideo)

Background

Standalone Resideo manufactures a variety of products found in homes. They are the #1 player in thermostats and smoke detectors, producing 15m and 24m units annually.

There are 3 sales channels:

1. Distributors, including ADI, make up 60% of sales

2. Retailers like Lowe’s and Amazon are 17% of sales

3. OEMs of security products (ADT) and water heaters (AO Smith, etc.) are 23% of sales

Homeowners are the end-users for Resideo products (they tout an installed base of 150m+ homes and businesses), but they are mainly sold through intermediary channels.

This is, to some extent, a bet on the housing market which has been weak lately. Sales are 80% repair & remodel and 20% new construction according to management.

What’s the financial picture?

On the surface, organic revenue growth looks low. Sales grew ~1.3% per year from 2017-2020, they acquired ~$400m revenue in 2021, and then sales were flat from 2022-1Q26.

But beneath the surface, it reflects a declining relationship between Resideo and ADI… at the 2018 spin, intercompany sales were $337m which fell to $171m as of 1Q26 (page 77 of RemainCo investor presentation).

Management expects organic growth to accelerate to 4-5% per year from a combination of market growth (1-1.3%), pricing (1-1.3%), and product expansion / new customers (2-2.5%).

After burdening the company with standalone costs of ~$76m per year, trailing EBITDA is roughly $600m.

The “growth algorithm” includes 2030 financial targets of 4-5% revenue growth (up from ~0-2%) and 23-25% EBITDA margins (up from ~20%).

So what could RemainCo shares worth?

Pro-forma net debt is $2bn (3.3x leverage) before factoring in their share of preferred equity. Management anticipates being at or below 2x leverage within 24 months. Including preferred stock ($350m), net debt is more like $2.35bn.

Trailing revenue is $2.9bn with $600m EBITDA (both as of 1Q26).

If I take management’s financial targets and stretch them to 2028, I get $3-3.1bn sales (1-2% annual growth) and $630-680m EBITDA (21-22% margins).

Peers (JCI, FBIN, AOS, PNR, and WTS) have varying business models with some serving a heavier commercial mix (like Johnson Controls and Allegion), but they have similar margin profiles (18-22%). This group trades at 13-16x earnings on the low-end and ~11x EBITDA.

Assuming 10x EBITDA (to compensate for more leverage) = $6.3-6.8bn enterprise value. Less $2.35bn net debt and 155m shares outstanding = $25-29 per share.

This feels pretty conservative and ignores any cash generation over the next 2 years which could be well over $600m in total.

Share Value Don't Lie

SpinCo (ADI Global)

Background

ADI Global is a distributor of “low voltage” products for commercial buildings (67% of sales) and residential homes (33% of sales).

They have a product catalog of 500k SKUs from 1,000+ suppliers and sell through a 100k+ professional contractor base. Sales channels include 200 branch locations and an e-commerce platform.

Product categories include: security (cameras, alarms, locks, etc.), audio visual (lighting, smart home, displays, switches), safety (detectors, alarms, etc.), and data communications.

In 2024, ADI acquired Snap One Holdings (SNPO) for $1.4bn which added a large base of exclusive products (which carry much higher gross margins) and expanded the customer base from ~80k to ~100k.

Digital sales channels are also a bright spot, growing from 10% of sales in 2018 to 30%+ in 2025. This channel also carries higher gross margins.

What’s the financial picture?

REZI shareholders will receive 1 share of ADIG for every 2 shares of REZI. That works out to ~77m shares outstanding post-spin.

The balance sheet will have $1bn gross debt, $150m cash, and ~$150m convertible preferred stock. Call this $1bn net debt or 3.4x leverage on $295m EBITDA.

ADI is targeting 2030 sales of $6bn (4-6% annual growth), EBITDA of $500m, and $1bn in cumulative FCF.

So what could SpinCo shares worth?

Distributors like Wesco, Rexel, and DNOW have similar margins at 6-8% and trade at 9-11x EBITDA.

Taking a similar approach with projected sales and EBITDA growth, I get $5.2-5.3bn revenue (2.5-3.5% annual growth) and $325-370m EBITDA (6.3-7% margins) by 2028.

Assuming 9-10x EBITDA (again, compensating for higher leverage than peers) = $3-3.7bn enterprise value. Less $1bn net debt and 155m shares outstanding = $13-17 per share. (That’s $26-34 per share on the post-spin share count.)

Again, there’s no consideration for cash generation here. At a targeted $1bn cumulative FCF from 2026-2030, that’s ~$6.50 per (pre-spin) share over the next 5 years.

Summing it up…

On a combined basis, I get $38-46 per share vs. today’s $35 share price (~9-35% upside).

There are plenty of “clean-up” catalysts here: first the indemnification agreement was unwound, then up is the spin, perhaps the preferred stock comes after that?

Throw in some organic growth and deleveraging and this has an attractive multi-year setup…

Yes, I’ve glossed over some of the risks and potential downsides here…

There’s some reliance on a housing market recovery for both sides of the spin, but this feels like it should be more of a tailwind over the next few years. Google’s Nest smart thermostat product has taken a lot of share in that category, these are competitive product lines.

For now, I’m waiting to see how initial trading goes (since we’re just a few days away from completion). Stay tuned for updates.

Disclosure: no position in REZI.

Resources:

• 2018 Resideo spin-off filings from Honeywell

• 2025 Resideo 10-K

• 2026 ADI Global spin-off filing

• July 2026 ADI Global spin presentation

• July 2026 Resideo (RemainCo) spin presentation

• Founder-led insurer with track record of value creation (jockey stock)

• Recent subsidiary IPO creates “stub” value in other businesses / assets

• Stub trades at ~8x normalized earnings with best-in-class balance sheet

• Shares lagging peers over past 3 years despite a much stronger business

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 07/13/26 — Fubo + Hulu Live merger + management change

• 07/06/26 — Recent “quality” spin-off at Mobility Global ($)

• 06/29/26 — Somnigroup’s vertical integration acquisition spree

• 06/23/26 — Guide to GoodCo / BadCo situations (a look at Tripadvisor) ($)

• 06/15/26 — Campbell’s is another beaten down staple

Read more

• Recently closed merger between Fubo and Hulu Live vMVPD platforms

• Shares trading at 4.2x 2028 EBITDA target with good visibility

• Abrupt CEO change brings in former head of Disney+

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 07/06/26 — Recent “quality” spin-off at Mobility Global ($)

• 06/29/26 — Somnigroup’s vertical integration acquisition spree

• 06/23/26 — Guide to GoodCo / BadCo situations (a look at Tripadvisor) ($)

• 06/15/26 — Campbell’s is another beaten down staple

• 06/08/26 — Updated look at upcoming Middleby spin-off ($)

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Quick Value

FuboTV Inc (FUBO)

It’s easy to assume that every stock owns 100% of their core operating business, but this isn’t always the case (“non-controlling interest” is easily one of the most confusing and overlooked corners of the balance sheet).

A few quirky ownership situations hit my watchlist recently (FUBO, MKTW, HGTY, etc.) and some of them might be actionable…

Background

Fubo is a sports-focused virtual Pay TV distributor (vMVPD).

Some history:

• 2015-2019 — Company was founded as a low cost streaming option for soccer matches; with backing from major content networks they expanded to compete with cable and other vMVPDs (Sling TV, etc.). Revenue grew to $133m in 2019 with $172m in operating losses.

• 2020-2021 — Completed reverse merger and public offering (~$180m raised) in October 2020, shares jumped from $10 to $50+ and the content networks sold their stakes. Revenue grew to $638m in 2021 and operating losses expanded to $328m. Shares ended 2021 at a split-adjusted $186 (from $120).

• 2022-2024 — Revenue grew from $638m in 2021 to $1.6bn in 2024 and subscriber revenues covered programming costs for the first time in company history. Disney, Fox, and Warner launched a competing product called Venu Sports and Fubo responded with an antitrust lawsuit. Shares went from $186 to $17 (down 90%) as losses mounted.

• 2025 — Announced a “merger” with Disney’s Hulu + Live TV service (i.e. their vMVPD offering, not the streaming app) in January 2025 and settlement of the Venu Sports lawsuit. Deal closed in October 2025. Shares went from $17 to $31.

• 2026 — Completed 1-for-12 reverse split. Reset long-term (2028) financial targets tied to the merger. Replaced CEO with Disney+ streaming executive. Shares down 70% YTD (from $31 to $9).

So let’s get this straight…

Several major content networks including Disney, AMC, Comcast, Viacom, and Discovery owned 45%+ of Fubo at the time of the IPO in 2020.

Because they had this equity/ownership, they were incentivized to see Fubo do well, and perhaps that influenced negotiations for content carriage deals.

Shares skyrocketed after the IPO and they all sold for a quick gain (Disney reported a $186m gain on their sale).

With no equity/ownership incentive, carriage negotiations got a bit more “real.”

Fubo struggled to generate consistent gross margins and adding to the pain, those content networks banded together to launch a competing service called Venu Sports in 2024, to which Fubo quickly countered with an antitrust lawsuit.

Hmm…

The Pay TV and vMVPD industry

Fubo is a virtual multichannel video programming distributor, or vMVPD as they’re known. Unlike a cable company with an installation process and set top boxes, these are virtual distributors. They pay content providers to carry their channels and wrap them in an online interface.

YouTubeTV is the largest player with 9-10m subscribers (up from an estimated 8m in the chart below).1

Most vMVPD offerings are priced attractively compared to cable packages, especially when considering additional fees for DVR, boxes, etc.

Historically, total vMVPD subscribers are growing while cable subscribers are declining with the overall industry / subscriber count declining.

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Why it’s interesting…

This is a fascinating corporate version of “stockholm syndrome.”

Fubo was growing quickly and took capital from industry peers (friends) who then cashed out and became enemies through content costs and competing offerings. Now, the biggest “frenemy” (Disney) is a 70% owner as part of a settled lawsuit.

A few things make it compelling here:

1. The lawsuit settlement & carriage cost reset make this a viable business model and gives the company better visibility into future earnings.

2. The Hulu / Fubo transaction structure was very complicated. It’s likely most investors don’t understand the math, and data providers aren’t feeding the right capital structure information.

3. Shares were clobbered after resetting initial Hulu merger targets in early 2026.

4. In July 2026, they announced that co-founder and CEO David Gandler was being replaced immediately by Alisa Bowen, the former head of Disney+ / streaming at Disney.

Let’s start by looking at the fundamentals…

Some notes:

• Leading up to (and shortly after) the IPO, revenue was on a solid growth trajectory at a 65% CAGR

• They spent boatloads on marketing and content which helped grow the subscriber base from ~550k in 2020 to ~1.6m by the end of 2025, but cumulative losses were more than $1bn during this stretch

• Fubo issued debt ($380m) and equity ($880m) to cover those operating losses

• Growth tapered off in 2025 and margins started improving (the cash inflow was tied to the lawsuit settlement)

What about this lawsuit?

In January 2025, Fubo announced a settlement with Disney, Fox, and Warner Bros which resulted in: (1) a $220m cash payment to Fubo; (2) a $145m term loan from Disney; and (3) the combination of Disney’s Hulu Live business with Fubo to create NewCo.

The cash settlement provided a nice balance sheet recap, but more importantly was the “commercial services agreement” with Disney which reimburses NewCo for 95% of Hulu Live’s carriage expenses in 2025-2026 and escalates to a 99% reimbursement by 2028.

This commercial services agreement will significantly improve Fubo’s unit economics going forward. Here’s what management had to say on the 2Q26 earnings call about it (emphasis added):

This contractual step-up provides strong visibility into our expected earnings profile and adjusted EBITDA expansion. Furthermore, the company captures advertising revenue from both the Fubo and Hulu + Live TV businesses. Together, these elements reinforce our expectations regarding the long-term earnings power of our combined entity.

the largest component of the adjusted EBITDA improvement will come from the contractual increase in the wholesale fee from 95% to 99%

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What about the Hulu merger?

As a reminder, this was a combination of 2 vMVPD platforms and does not include the Hulu streaming service/app.

Operationally, Fubo and Hulu Live will operate as 2 separate brands and platforms. Fubo pitches itself as being sports-focused and Hulu Live is more of a generic competitor to YouTube TV. Any synergies between these brands are expected to come on the backend (marketing, admin, programming cost negotiations, etc.).

After closing, Disney owns 70% of Fubo via Class B voting shares and 70% of the economics via NewCo.

It was an up-C transaction, so technically Disney owns 70% of the operating subsidiary and the stake is recorded as a non-controlling interest on the balance sheet (i.e. it’s messy).

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What’s the pro forma picture of Hulu + Fubo?

At the time of the deal announcement, Fubo was touting $550m EBITDA by 2028, in part from better programming costs (makes sense, distribution is a scale game).

Shortly after the deal closed (February 2026), management foreshadowed a major reset in these long-term targets… Turns out, Fubo and Hulu Live have separate programming contracts and content providers weren’t willing to negotiate them collectively:

Translation: it’s going to take much longer for programming cost synergies to bear fruit because these are multi-year deals.

A few months later in April 2026, management laid out new (much lower) financial targets in a shareholder letter:

• Fiscal 2026 Pro Forma Adjusted EBITDA guidance of $80-$100 million

• Fiscal 2028 Adjusted EBITDA target of at least $300 million

• Positive Free Cash Flow expected in Fiscal 2027 and Fiscal 2028 under current operating plan

I believe this financial “reset” is a major reason behind the YTD stock performance AND the recent CEO turnover.

The good news is more than half of the incremental EBITDA from 2026 to 2028 comes from the Disney/Hulu commercial services agreement which is contractual. So you have good visibility into the potentially “kitchen sink” $300m 2028 target (unless the wheels fall off elsewhere in the business).

What could shares be worth?

There are 29.4m Class A shares (publicly traded Fubo) and 79m Class B shares held by Hulu = ~110m shares outstanding (assuming some modest dilution from here). At $10 = $1.1bn market cap. Net debt is roughly $150m at 2Q26 for a $1.25bn enterprise value.

Note: The Class B shares are vote-only, but each one is paired with NewCo LLC units that can be exchanged into Class A shares. I’m using ~110m shares when valuing 100% of the consolidated business. If you use this share count and add the $1.84bn non-controlling interest to EV, then you’re double-counting Disney’s 70% economic ownership.

Comps…

It would be an understatement to say the media landscape is undergoing significant change. Media players trade all over the place depending on their business models:

Let’s assume the 5-7x EBITDA range is the right comp set for this business:

• Upside — Giving them full credit for the $300m EBITDA target at a 7x multiple = $2.1bn enterprise value. I’ll assume net debt remains at $150m (i.e. 2026 outflows and 2027 inflows offset each other) = $18 per share or 80% upside.

• Downside — Taking the 2027 EBITDA estimate ($187m) at 5x = $935m EV. In this scenario, I’ll assume heavy cash burn leaving net debt equal to gross debt ($375m). That works out to a $560m equity value or $5 per share (50% downside).

This works out to a 1.6x upside/downside ratio.

At that level of EBITDA, cash flow is likely substantial. Capex is running $12-15m annually, interest ~$12m annually, and cash taxes should be minimal with NOLs and depreciation. Back of the napkin math gets me to $240m or so in FCF or $2+ per share.

Not bad on a $10 stock.

Summing it up…

At this point, we’ve hammered home the reasons this stock is getting absolutely annihilated over the past few years.

It’s turning into a bit of a special situation now, with a complicated backstory, complex transaction, and a forced management change by Disney.

Not only is this a beaten down stock (although a bit of a falling knife) it’s also a management change story with an external hire and the first non-founder leader.

Some open questions for me, which could be interpreted as the potential risks in this situation:

• Was the 2028 guidance reset deep enough?

• What happens after the Hulu carriage deal expires? Will this lead to another EBITDA reset in 2030/beyond?

• What is Disney’s plan here? Is there a possibility for a takeunder?

• Can this business be successful running 2 separate vMVPD brands long-term? Or will they need to consolidate into a single brand eventually (likely Hulu)?

I’m planning to sit with this one for a while. Why?

The transaction structure is complicated and I don’t think investors will give them full credit until that becomes clearer or gets resolved.

Also, Disney is clearly in the driver’s seat (see the CEO change as a reference) which could mean they build some success and then you get taken out prematurely below fair value.

It’s an interesting “optionality” bet where this could be a 2-3 bagger if things play out. Will need to do some more work here. Thoughts or comments welcomed.

Disclosure: no position in Fubo.

P.S. here’s my video version of this article:

Resources:

• January 2025 Hulu deal presentation

• August 2025 merger proxy

• April 2026 shareholder letter (with long-term financial targets)

• Q2 2026 10-Q

• Recent spin-off of automotive data from S&P Global (SPGI)

• Potential high quality business suffering from technical spin-off selling

• Shares trading at ~12x 2026 EPS estimates and ~10x EBITDA with low leverage

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 06/29/26 — Somnigroup’s vertical integration acquisition spree

• 06/23/26 — Guide to GoodCo / BadCo situations (a look at Tripadvisor) ($)

• 06/15/26 — Campbell’s is another beaten down staple

• 06/08/26 — Updated look at upcoming Middleby spin-off ($)

• 06/01/26 — All-stock cabinet merger MasterBrand

Quick Value

Mobility Global (MBGL)

This one wasn’t really on my radar until the spin came and went. A friend asked me to take a look saying it was cheap.

Surely this couldn’t be true with S&P Global (SPGI) trading >20x earnings?

Let’s find out…

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• Dominant industry player during deep industry recession

• Multi-year targets call for MSD sales growth and 20%+ EPS growth through 2028

• Pending acquisition adds deep vertical integration

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 06/23/26 — Guide to GoodCo / BadCo situations (a look at Tripadvisor) ($)

• 06/15/26 — Campbell’s is another beaten down staple

• 06/08/26 — Updated look at upcoming Middleby spin-off ($)

• 06/01/26 — All-stock cabinet merger MasterBrand

• 05/31/26 — A case study of a stub business investment

• 05/26/26 — My 4 favorite special sits right now ($)

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Quick Value

Somnigroup International (SGI)

I’ve previously written about (and owned) shares of Leggett & Platt (LEG) which is set to be acquired by Somnigroup in an all-stock merger by yearend 2026…

It seems fitting to give the acquirer a quick review.

Background

SGI is a vertically integrated manufacturer, wholesaler, and retailer of mattresses and bedding products.

They have undergone a significant transformation over the past few years:

• 2012 — Tempur-Pedic acquires Sealy Corp to become Tempur Sealy

• 2013-2019 — Period of low/zero growth in sales and EBITDA from: Sealy integration, breakup from Mattress Firm relationship, and rise of DTC brands like Casper, Purple, etc. (Note: Mattress Firm filed for bankruptcy in 2018)

• 2020-2024 — Pandemic/stimulus buying plus the acquisition of UK retailer Dreams pushed annual sales from ~$3bn (2016-2019 average) to ~$4.9bn (2021-2024 average)

• 2025 — Tempur Sealy acquires Mattress Firm for $5.1bn in cash & stock deal to create vertically integrated bedding manufacturer & retailer, changes name to Somnigroup Interational (SGI)

• 2026 — SGI announces $2.5bn all-stock acquisition of Leggett & Platt (LEG) to add vertical integration capabilities

Prior to the Mattress Firm acquisition, SGI was primarily a manufacturer and wholesaler (77% of sales). That model flipped with the addition of MF’s 2,000+ retail stores:

Today, SGI owns a collection of mattress brands (Stearns & Foster and Tempur-Pedic on the premium-end and Sealy’s on the value-end) with robust distribution via 2,100 retail stores in the U.S. (Mattress Firm) and another 200 stores in the U.K. via Dreams.

They are the dominant industry player with revenue 5-6x higher than peers.

What is the state of the industry today?

Bedding is a $120bn global market of which SGI has $7bn annual sales. Mattresses as a sub-category are closer to $50-$60bn with 2025 industry volumes at ~70% of normal replacement levels.

The chart below highlights annual revenue for Purple, Leggett, and Sleep Number (now bankrupt). It perfectly captures the industry’s DTC-fueled growth from 2014-2019, pandemic spike in 2021, and slow decline thereafter:

Domestic production volumes were 15.9m in 2025 which is 12% below 2009 trough levels and 30% below 10-year average levels:

Pandemic & stimulus demand was one contributor to those collapsing volumes… rising imports are another:

And a weak housing market is yet another (new mattress purchases are closely tied to moving into a new home):

Despite the incredible industry weakness, SGI remained (and remains) a profitable company.

Why it’s interesting…

There are 2 main reasons to like this idea here…

1. Leggett acquisition comes at a bargain price of <6x EBITDA and ~10-12x EPS

2. SGI is the dominant player in an industry operating WAY below historic volumes

First, a look at the fundamentals at SGI

Some highlights:

• Legacy SGI went through a tough period during the rise of DTC brands like Casper and Purple. From 2014-2019, sales & EBITDA were essentially flat.

• Then COVID came, and with it a boost in online shopping and stimulus money. Tack on the Dreams acquisition (2020) and sales jumped ~50% from the 2014-2019 average.

• Results plateaued again from 2021-2024 leading up to the Mattress Firm acquisition (2025).

Along the way, management invested heavily in buybacks, levering up the balance sheet to do so.

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So what’s the outlook from here?

During a March 2026 investor day, management laid out 2026-2028 multi-year targets, including mid-single-digit sales growth and 20%+ EPS growth ending in $5.15 by 2028:

These multi-year targets anticipate a modest recovery in industry volumes (LSD growth), so it’s not baking in a full-blown “return to normal” scenario.

In the near term, 2026 guidance calls for $7.8bn sales (+4% YoY) and $3.00-3.40 EPS (+20% YoY). Not bad for the first full year after the Mattress Firm deal.

What about this Leggett (LEG) acquisition?

The $2.5bn all-stock deal is set to close by yearend 2026, after which SGI revenue will increase by 50% from $7.5bn to $11bn+

This acquisition adds deeper vertical integration into upstream components used in the bedding manufacturing process. LEG brings 28 manufacturing plants, 5 R&D centers, and several non-bedding business lines (auto, furniture, specialty products, etc.).

This is a really smart acquisition for SGI…

They are issuing ~20m shares while trading at ~24x 2026 EPS to buy a very cheap LEG at less than 6x EBITDA and 10-12x EPS.

Granted, LEG suffered much more than SGI as production levels declined since they produce input components used in the final assembly of mattresses like: rods, springs, and wire. As of today, LEG has delevered a ton and the business is stabilizing.

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Pro-forma financial picture…

Once the deal closes, the pro-forma share count will increase to ~233m.

At $78, this leaves SGI at a ~$18bn market cap. Net debt jumps to ~$5.4bn for a $23.5bn pro-forma enterprise value.

Here’s my math when piecing these 2 together:

At a $23.5bn enterprise value, you’re getting SGI at 12.7x EBITDA and 20x P/FCF, certainly not cheap.

The real opportunity is the combination of normalizing industry volumes plus the LEG bargain acquisition…

And both management teams laid this case out with their financial projections in the merger proxy:

SGI management projections

LEG management projections:

Hmm…

So what could shares be worth?

Historically, SGI trades at a bit of a premium valuation: 16x P/E and 10x EV/EBITDA over the last 20-years:

Upside:

Let’s say legacy SGI hits $1.9bn EBITDA by 2028 and LEG chips in another $400m plus $50m in cost synergies = $2.45bn EBITDA by 2028. At 10x = $24.5bn EV (not far from today).

Assume debt remains unchanged at $5.4bn and you get $82 per share which is virtually unchanged from today.

But this ignores any cash generation which is meaningful (see chart below) — standalone SGI expects $3bn cumulative FCF from 2026-2028 = $13 per share and let’s call it another $435m from LEG = $2 per share.

Valuing the business at $82 + cash flow at $15 = $97 per share by 2028 (+26% upside)

Downside — Using a downside multiple of 11.7x earnings and 8.1x EBITDA on 2026 pro-forma results ($930m FCF and $1.86bn EBITDA) = $41-46 per share (45% downside).

That’s an upside/downside ratio of ~0.6x, pretty unappealing…

Summing it up…

This is a fairly simple bet — deal integration plus macro recovery feeds into a multi-year earnings growth story.

And it’s only implying a partial industry recovery, so maybe you have some optionality if things improve more than expected. (Analyst estimates are only giving the company credit for $4.80 2028 EPS vs. the $5.15 target.)

The starting valuation is a bit rich for me and the risk/reward isn’t asymmetric enough. It’s unclear to me how industry volumes may continue shifting online, which might eventually kill some of Mattress Firm’s 2,000+ store base.

But it’s an interesting way to play a housing market recovery and simultaneously own the dominant player in a large industry.

I’m parking this one on the watchlist for now, but could get interested at a price in the $60s (risk/reward >2x).

Disclosure: no position in SGI or LEG

Resources:

• Somni + Leggett merger proxy

• Leggett (LEG) acquisition presentation

• March 2026 investor day presentation

Before you move on and write this one off, take a quick peek at the segment results to see if there’s a GoodCo / BadCo situation developing. (That’s short for “good company” and “bad company.”)

This is a multi-part series covering my favorite investment themes (an ode to Peter Lynch’s six “story types”).

Today’s guide is Part 10 of the 15 investment themes I look at frequently. My goal is to improve pattern recognition and pull out the characteristics of the best (and worst) ideas in each category. Case studies and actionable ideas included.

Links to Parts 1-9 are listed at the bottom of this article.

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GoodCo / BadCo Situations

Imagine a company with two divisions serving entirely different markets (think: manufacturing & restaurant chain). The first division has $1m annual sales at 20% margins and is growing nicely. The second division has $5m annual sales with 5% margins and is shrinking.

That’s a combined $6m annual sales and $450k profits.

How would you value this company?

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• Shares down 20% YTD and 30% over 1-year (beaten down category)

• Valuation reset from historic 15-16x P/E to current 10-11x P/E

• Navigating high leverage (4x) from recent acquisition

• Cash flow constrained from high dividend (7% yield)

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 06/08/26 — Updated look at upcoming Middleby spin-off ($)

• 06/01/26 — All-stock cabinet merger MasterBrand

• 05/31/26 — A case study of a stub business investment

• 05/26/26 — My 4 favorite special sits right now ($)

• 05/18/26 — Former compounder Zoetis looks beaten down

• 05/11/26 — Sale + spin at Enviri ($)

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Quick Value

The Campbell’s Company (CPB)

Let’s continue on the review path of beaten down staples & CPG stocks. Previous write-ups:

• Nomad Foods (NOMD)

• Magnum Ice Cream (MICC)

Background

Campbell’s is a packaged foods business with 2 segments:

1. Meals & beverages ($6bn FY25 sales) — soups, simple meals, and beverages sold in retail & foodservice settings

2. Snacks ($4.2bn FY25 sales) — cookies, crackers, bakery and frozen products

Let’s add some historical context here:

• 2016-2018 — Period of modest revenue decline, low leverage, and modest buybacks. Culminated in 2018 acquisition of Snyder’s-Lance for ~$6bn. It was a rich valuation (20x EBITDA before synergies), brought a host of snack brands (Snyders, Kettle, Pop-Secret, etc.), and reduced soup exposure from ~35% to 27%. Shares fell from ~$50 to $35.

• 2019-2020 — Hired Mark Clouse (former head of Pinnacle Foods) as CEO. Divested $3bn in various brands/businesses and repaid $3.7bn acquisition debt to delever from ~5x to ~3x. Shares from $35 to $47.

• 2021-2024 — Post-pandemic rebound. Falling volumes but huge price increases took revenue from $8.5bn to $9.6bn and EPS from $2.98 to $3.08. Acquired Sovos Brands (Rao’s) in 2023 for $2.7bn (20x EBITDA) which re-levered the company. Shares from $47 to $39.

• 2025-2026 — Mick Beekhuizen named CEO (former CFO and head of Meals & Beverage division). Tariffs, inflation, and industry volumes killing fundamentals. EPS from $3.08 to a guided $2.15-2.25 in 2026 (down 23-26% YoY). Shares from $39 to $23.

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Why it’s interesting…

I would categorize this stock in the beaten down category.

CPB was trading as high as $50 as recently as late 2024. At $23, shares are down >50% on the back of an earnings dive + valuation reset. Shares are nearing a 7% dividend yield and 10x earnings today.

The beaten down category is an excellent hunting ground for new ideas, but it’s rarely a good reason to buy a stock by itself.

Maybe there’s something at CPB which could make it compelling?

A quick review of the fundamentals

Like other CPG companies: price and volume have been erratic since the pandemic.

Many companies took significant price hikes coming out of the pandemic, essentially pulling forward several years of price increases in a short window. This is fueling a rapid trade down to cheaper generic and private label brands. CPB is “investing” in beefed up marketing spend as a result.

Then you have tariff and inflation eating into historically very high margins (>20% pre-covid EBITDA margins).

There’s your industry backdrop for basically every CPG stock right now.

All of this is leading to EBITDA margins 400-600bps lower than “normal” (history) and increased pressure on cash flow at a time where leverage is high. Ouch.

Adding to the fun, CPB has been a terrible capital allocator — zero change in EPS from 2016-2025 despite a net $6bn investment in M&A, before collapsing to an expected $2.15-2.25 in 2026. Ouch. Gotta love that dividend though!

In 2025, CPB produced a combined $944m from FCF ($705m) and divestitures ($239m) while spending $907m on repaying debt ($356m), buybacks ($92m), and dividends ($459m).

Barring any major divestitures or portfolio shake-up, this is probably what a normal year will look like for a while…

So where do things go from here?

We are a little over a year into a new CEO (Mick Beekhuizen) who was dealt a levered business with revenue and margin headwinds.

Capital allocation is squarely focused on delevering right now with buybacks and M&A “off the table.”

Management is focused on maintaining an investment grade balance sheet, keeping the dividend flat, wringing out working capital, and only the highest priority capex projects.

There’s a good chance we’ll see further divestitures from here… CEO commentary from the 3Q26 earnings call:

…there is a tail of SKUs in certain brands. It's not a lot of sales. However, we believe that the reduction of that tail could actually allow for further simplification and as a result, improve the overall operations and improve our overall network.

How bad is the leverage situation?

As of 3Q26 (5/31/26), net debt is $6.6bn with $1.64bn trailing EBITDA (3Q26 earnings presentation) = 4x leverage. They want to get to the “low 3s.”

There is roughly $200m of FCF after the dividend available for repaying that $6.6bn debt; translation: it’s going to take quite some time without a rebound here… This is what a constrained business looks like.

Let’s assume the business stabilizes at $1.6bn annual EBITDA:

• At $200m annual debt repay = 6.6 years to hit 3.3x leverage.

• At $300m annual debt repay = 4.4 years to hit 3.3x leverage

What’s the outlook and what are shares worth?

CPB has a 7/31 yearend and expects 2026 revenue to fall 1-2% and EPS to fall 23-26%:

On the bright side, it looks like earnings are stabilizing on a quarterly basis.

After 2 consecutive quarters of $0.50 EPS, run-rate EPS looks closer to $2 than $2.15-2.25, which is where sell-side estimates are sitting for FY27 (ending 7/31/27).

Perhaps this could be a bottom?

At $23, this puts shares at ~11.5x FY27 earnings.

From a valuation standpoint, peers are trading at 10-20x earnings with a cluster at 10-12x and another cluster at 15-16x. Leverage is the key factor separating these 2 groups and CPB is at the higher end of the leverage range.

• Upside — Earnings recover to $2.25-2.30 per share and the stock trades back to its 5-year median P/E of 14.5x = $33 per share (+44% upside).

• Downside — Earnings continue to fall ($1.95) and the dividend is reduced to repay debt. At 8x earnings = $16 per share (-30% downside).

These are fast-and-loose calculations, but it’s a modest 1.5x upside/downside ratio here with an extremely difficult dividend situation to handicap (I believe they need to reduce it in order to hit leverage goals within 2-3 years).

An interesting, albeit super boring, scenario could be a very slow debt repay timeframe of 5-10 years at $200m per year based on current cash flows.

Let’s say that amount “accrues” to equity holders each year = $0.60-0.70/share. Tack that onto a 7% dividend yield and the slow-and-steady deleverage path maybe nets a 10%+ IRR over a decade. Bonus if earnings stabilize, then turn a corner a few years in.

Summing it up…

These are solid brands in durable product categories which will absolutely be around 10+ years from now with zero doubt.

The question is whether shares are cheap enough to bridge a gap between today’s financial strain to a more “flexible” tomorrow. Meaning: a company with low enough leverage to deploy capital in whatever means desired.

My take — Shares aren’t cheap enough yet. Sure, these are durable brands; but the headwinds are still around and there’s no hard catalyst to get things going. I see a few paths here:

1. Super boring 10%ish IRR deleveraging story (assuming earnings stabilize)

2. Dividend reduced or eliminated to speed up deleveraging which kills the stock price (I’d get interested after this event)

3. Dramatic portfolio simplification / divestiture announcement (again, I’d get interested with this announcement)

Until then, I’ll keep this one on the watchlist.

Let me know your thoughts.

Disclosure: no position in CPB

Resources:

• CPB FY25 10-K

• CPB 3Q26 10-Q

• CY2024 investor day presentation

• Shares are flat for 3+ years now

• Trading at a 15-20% discount to both history and peers

• Spin-off creates 2 very different earnings growth stories

• Leading up to the spin, management is buying back stock at a historic pace

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: (1) company background; (2) why the idea is interesting; and (3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 06/01/26 — All-stock cabinet merger MasterBrand

• 05/31/26 — A case study of a stub business investment

• 05/26/26 — My 4 favorite special sits right now ($)

• 05/18/26 — Former compounder Zoetis looks beaten down

• 05/11/26 — Sale + spin at Enviri ($)

• 05/01/26 — Ice cream spin-off Magnum looks cheap

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P.S. I’m hosting a paid subscribers live call via Substack this Friday (June 12th) at 12pm ET — join using this link.

Read more

• Recently closed all-stock merger between MBC & AMWD

• Creates largest industry player at weak point in housing market

• Pro-forma, shares trading at 7.7x trough EBITDA (incl. synergies)

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 05/31/26 — A case study of a stub business investment

• 05/26/26 — My 4 favorite special sits right now ($)

• 05/18/26 — Former compounder Zoetis looks beaten down

• 05/11/26 — Sale + spin at Enviri ($)

• 05/01/26 — Ice cream spin-off Magnum looks cheap

• 04/21/26 — Guide to analyzing “asset plays”

REMINDER: Prices are going up tomorrow! Subscribe today to lock in current pricing of $20/month or $200/year.

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Quick Value

MasterBrand Inc (MBC)

MBC and AMWD recently completed an all stock merger, which seems fitting for a special situations focused newsletter like this one.

Background

The housing market is in the dumps, but apparently Buffett (Abel?) is buying; at some point this industry will turn the corner, right?

Industry overview

Both MBC and AMWD manufacture and sell kitchen cabinets.

The cabinetry industry is a roughly $18-20bn market with 2/3 sales coming from the repair and remodel segment, and 1/3 sales coming from new home construction (MBC Form 10 filing, 2022).

Cabinets are sold primarily through 3 distribution channels (from MBC 2022 investor day):

1. Dealers (57% of industry sales) — Network of 25,000 dealers (ex: Ferguson Home) operate showrooms, provide design services, and “educate” consumers on product options. Services both R&R and new construction markets.

2. Big box retailers (34%) — Dominated by Lowe’s / Home Depot (i.e. a very concentrated sales channel) and services mainly the R&R market.

3. Builders (9%) — Homebuilders serving new construction market. Switching costs are high(er) in this channel.

This industry is dependent on both the housing market and overall consumer sentiment.

A closer look at the housing market:

• Housing starts are a measure of new home construction and, after a strong post-GFC rally from 2010-2020, things are starting to cool off after a pandemic surge:

  

• Then you have existing home sales, which measures sale activity for already-built homes. Existing home sales aren’t quite at GFC-era lows, but they’re not far off.

  

• Both new home sales and existing home sales are largely a function of affordability (i.e. rates). Housing affordability (red line) is way down from the 2010-2020 period of ultra-low mortgage rates. Consumers planning to buy a new home (blue line) are down from the start of the pandemic, but elevated compared to history.

  

• Last, you have consumer sentiment, which is a key driver of the repair and remodel market. When consumers are feeling good and flush with cash, they’re more likely to spend on a kitchen remodel. Lots of macro variables feed into consumer health: wage growth, savings rate, consumer sentiment, housing, affordability (mortgage rates), credit availability, inflation, etc.

Most of these charts point to concerning trends.

If we look at the inventory of homes available, both new & existing homes are on the rise, there are ~10 months of new home supply and ~4.4 months of existing home supply on the market. (Note: new home monthly inventory is very close to GFC levels.)

These charts point to a demand problem, not a supply problem.

Fortunately, it’s easier to fix a demand problem…

The largest 2 factors being rates & prices.

• Home prices are already falling across the new construction market and in certain markets for existing homes.

• Mortgage rates are at pre-GFC levels (high), but they’ve stabilized and are down slightly from post-pandemic highs.

  

I used lots of charts to highlight what MBC management described very succinctly in their Q1 2026 earnings call:

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Why it’s interesting…

This is an all stock merger creating the industry’s largest player with ~30%+ market share at a time when the housing market is searching for a bottom.

From a valuation standpoint, pro-forma shares are trading at a depressed multiple of near-trough numbers.

Since the housing market is facing demand-side problems, it’s hard to say that 2026 will be the bottom. So instead, I’d like to understand the business and what earnings could be under “normal” market conditions to see whether we have an attractive setup here.

The merger

At the time of announcement, MBC was trading at $12 and AMWD at $62. As of today, MBC trades at $9 and AMWD closed at $48, both down 20-25% each.

This is one of those “makes a ton of sense” mergers.

From a product standpoint, MBC leans premium price point while AMWD is on the value/stock end. Combined, they move from a moderately overlapping catalog to a full assortment of low-end, mid, and premium products.

From a distribution standpoint, MBC was very dealer-centric while nearly half of AMWD sales came from the builder channel. Combined, this is a more balanced sales mix (25% builder, 36% retail, and 39% dealer):

Cost synergies are expected to total $90m over 3 years which is ~5% of the current market cap ($1.79bn) and ~29% of pro-forma 2026 EBITDA ($311m).

Half of the synergy goal is G&A related. None of these synergies include closing/consolidating manufacturing or distribution facilities. (As an aside, maybe this isn’t feasible if plants are dedicated to stock vs custom product lines?)

What I love most about this transaction is: (1) the all-stock nature which creates no added leverage; and (2) the cycle timing (both companies agreed to this near a bottom vs a top).

Why is that 2nd point important?

Few businesses are willing to sell themselves near the bottom of a cycle. This combination signals (to me at least) the importance of scale and a willingness to make hard decisions, especially on costs, during a cycle downturn.

Normalized earnings

At the time the merger was announced, it was pitched as a combined ~$550m EBITDA business before synergies and $639m after synergies:

We’ve already seen the charts + commentary highlighting a challenging industry backdrop, so it shouldn’t be a surprise that fundamentals are deteriorating quickly here…

Using sell-side estimates for standalone MBC and standalone AMWD (as of May 2026), I see $311m combined EBITDA before synergies for 2026 (which is 44% lower than the $550m at time of announcement):

The big unanswered questions are:

1. Will 2026 represent the bottom?

2. What are earnings under “normal” market conditions?

Valuation

After closing, MBC has ~208m shares outstanding and trades at $8.50 = $1.77bn market cap. Net debt is $1.3bn as of Q1 2026, but includes a quarter of seasonal working capital outflows (i.e. net debt will likely be much lower by yearend 2026).

Since this is a cyclical business approaching an industry trough, a revenue multiple is probably most appropriate here…

There are 2 good comparisons: (1) Masco sold their cabinet business to what is now the #2 player, Cabinetworks, back in 2018 at 1.05x sales; and (2) AMWD historically traded at ~1x sales from 2014-2025.

Combined MBC/AMWD sales are expected to decline 8-9% in 2026 to $4.06bn. At 1x EV/sales = $2.76bn equity value or $13 per share (+53% upside).

On the low-end, let’s use a trough EBITDA figure of $300m with zero credit for cost synergies. AMWD historically traded at a median 8x EBITDA multiple with a low of 5x.

I’ll use 8x trough EBITDA of $300m as a low-end valuation = $2.4bn enterprise value. This works out to a $1.1bn equity value or $5.30 per share (-38% downside).

Clearly the upside could be much greater with synergies and a housing recovery. A normalized EBITDA level is probably closer to $500m with another $50-75m synergies tacked on gets you $550-575m.

At 8x EBITDA = ~$4.5bn enterprise value or $3.2bn equity value. That’s more like $15-16 per share (80%+ upside) in a recovery scenario without any credit for deleveraging or 2026 cash flow.

Perhaps the upside/downside ratio is more than 2x here.

Summing it up…

I’m not ready to call a market bottom here, but I have been following a handful of housing-related names.

There are some serious tariff risks to this business, management is guiding to a 5-6% impact on gross sales which is nearly half of historic margins. They plan to reduce/eliminate this impact in 2026-2027, but there’s a chance it won’t cover everything.

Pzena had an April 2026 article calling for $1.50 per share in normalized earnings which puts the stock at a 5-6x earnings multiple in a recovery scenario. It’s not hard to paint an upside picture here.

This one is sitting on my watchlist for now. It looks like levered upside to housing & rates at the moment.

Disclosure: no position.

Resources:

• 2022 MBC investor day presentation

• Aug 2025 merger presentation

• 2022 Form 10 filing (MBC spin-off)

What happens to the “small portion” of that business?

Those are stub shares.

Every single one of these situations is worth your time.

Not long ago, I wrote a “guide to asset plays,” which briefly touched on stub shares. Here’s what I wrote about them:

…when the majority of a company will be acquired leaving a “stub” business behind. In these cases, shareholders typically receive a large cash distribution and a smaller portion of their holding in the stub business.

These are rare, but always worth a look.

Pure arbitrageurs can’t own them because of the volatile stub value; and unlike the selling pressure in a traditional spin-off, there’s pent-up buying pressure because most investors can’t or won’t put up $1 to get a 20c position. For example, if you wanted a 5% position in the stub, you’d likely have to buy a 20-30% position pre-close.

Let’s look at a case study from an investment I made back in 2014…

Case Study: Symmetry Medical

It was summer 2014 and Tecomet announced they would acquire the OEM Solutions business from Symmetry Medical (SMA) for $450m.

After repaying all debt, Symmetry planned to distribute $7.50 per share to investors and the stock was trading around $9.

But they also owned a small distributor of surgical instruments which would be spun off to shareholders at closing at an implied price of $1.77 per share.

Symmetry Medical (SMA) — the pre-close business

• Shares outstanding: 37.6m (10-Q, 3Q14)

• Price: $9.27

• Market cap: $350m

• Cash distribution: $7.50

• Stub share price: $1.77

Forget about the fundamentals of the OEM Solutions business or what multiple the combined SMA was trading at pre-close, those details are irrelevant.

Symmetry Surgical (SSRG) — the stub business

Inside SMA was a niche distributor of surgical instruments. They carried 20,000 products sold to thousands of hospital/GPO customers in a tiny corner of the surgical instruments market.

At the time I started looking, SSRG was roughly 20% of the pre-close SMA share price. Meaning: you’d have to put up $1.00 just to get a 20c position.

So I opened up the spin documents (in this case an S-4 prospectus) and flipped straight to the standalone cash flows…

This surgical division threw off $17.6m FCF in 2013, $9.3m in 2012, and $6.8m in the first half of 2014. That was $33.7m combined FCF over a 2.5 year stretch with an implied market cap of $68m.

No need to look further, I’m already in…

If only it were that simple…

Next, I looked at the revenue trends.

Here’s a timeline of performance since 2009 when the segment was first disclosed inside SMA:

• 2009 — $26m segment revenue

• 2010 — $35m revenue

• 2011 — $39m revenue (spent $176m on 2 acquisitions in late 2011)

• 2012 — $107m revenue (+175% from 2011 due to the acquisitions)

• 2013 — $89m revenue (-17% from 2012, integration challenges)

• 2014 — $85m TTM revenue (-8% through 6 months of 2014)

Ouch. Those 2011 acquisitions weren’t looking so good…

Turns out, Symmetry botched the hand-off from J&J which led to price & volume declines in 2013-2014. Adding to the pain, a key product line was acquired by Covidien/Medtronic in mid-2014.

Fortunately, there were some green shoots…

First, management was excited about this business, and the team running pre-close SMA was staying to run the much smaller SSRG. Before joining SMA in early 2011, the CEO previously ran J&J’s DePuy ortho unit which SSRG acquired in late 2011. Hmm…

Second, as is the case in most of these stub situations, the spin-off was well capitalized with no debt and plenty of net working capital ($22m at closing). It was also a highly cash generative business with minimal capex needs.

Last, several cost saving initiatives (including reducing management comp) were already in place… these savings totaled $3.2m and were offset by $1.4m of lost profitability on the lost product line.

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So what happened?

The transaction closed in December 2014, with the following characteristics

• Share count: 9.6 million (1 SSRG share for every 4 SMA shares)

• Share price: $7.08 ($1.77 pre-spin)

• Market cap: $68m

• Net debt: $0

• Trailing EBITDA: $9.9m (6.9x)

• Trailing FCF: $10.8m ex-WC (6.3x P/FCF)

Over the next 5 quarters after closing — revenue bottomed (4% growth in 2015 & 2% growth in 1Q16) and FCF totaled $16.4. From a capital allocation standpoint, they made a single $4m acquisition and net cash piled up to $11m.

Shares steadily climbed as progress was made.

End result?

The stub business was acquired 18 months after the spin-off by a healthcare-focused PE firm for $13.10 per share (an 85% premium to the initial spin price). Based on 2016 guidance of $9.5-11m EBITDA, this was an ~11x EBITDA exit multiple.

What made this work & why are stub shares worth your time?

Aside from the business itself and the fundamentals, a few factors contributed to this idea:

• Because they stem from a sale + spin backdrop, most stub businesses start with clean balance sheets and plenty of cash to operate/grow

• Stub shares are very small relative to the pre-close trading price, so they’re easily overlooked by most investors (or most investors are unwilling to put up the capital required to buy them ahead of closing) — the bigger the “ratio,” the better here

• It’s hard (impossible?) to arbitrage these situations since most have only 70-80% of the pre-close share price coming back via cash distribution… there’s no way to arb the stub/spin business

• Then you get the traditional post-spin dynamics — a more focused standalone company, right sizing cost structures, pursuing growth plans, gaining more investor attention, etc.

Happy hunting!

Colin

P.S. if you’re looking for more situations in this category, there are 2 timely ideas out there:

• Enviri (NVRI) — this one closes on June 1st, so the stub business is just getting started (link to my write-up)

• Green Dot (GDOT) — the spin-to-distribution ratio isn’t as wide as I’d like, but it’s still compelling… this stub will create a well-capitalized bank-as-a-service (BaaS) company (link to my write-up)

P.P.S if you enjoyed this write-up, give it a “like” and consider upgrading to become a paid subscriber :)

Each has a defined catalyst, sizable valuation gap, and a reasonable path to 40%+ upside over the next 6–24 months. Some may be sold after the catalyst, while others could become longer-term compounders. But as of today, these are my highest-conviction event-driven ideas.

Enjoy!

P.S. For the first time in 8 years, prices are going up. On June 1st, prices will move from $20/mo to $25/mo and $200/yr to $250/yr. This blog is inexpensive for the depth of special sits coverage it provides so hit subscribe to lock in today’s rates.

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Top picks among special situations

In no particular order, here they are:

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• Shares down >60% from peak

• Consistent cash flow and low leverage

• Former compounder now trading at “deep value” price

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 05/11/26 — Sale + spin at Enviri ($)

• 05/01/26 — Ice cream spin-off Magnum looks cheap

• 04/21/26 — Guide to analyzing “asset plays”

• 04/13/26 — Beaten down CPG stock Nomad Foods ($)

• 04/09/26 — My 30 second review of super cheap Gen Digital

• 04/06/26 — Upcoming spin-off at Middleby ($)

• 03/23/26 — A look at GameStop fundamentals

• 03/16/26 — Green Dot upcoming sale + spin ($)

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Quick Value

Zoetis (ZTS)

Ticker: ZTS
Price: $77
Shares: 420m
Market cap: $33bn
Valuation: 11x P/E
Theme: beaten down

When I see shares plummeting ~40% over a short period of time, I can’t help but take a closer look…

Background

Let’s start with some backstory:

• 2013 — Pfizer took their animal health business, Zoetis (ZTS), public via IPO + split-off (not an official spin).

• 2013-2019 — This was a period of massive earnings optimization. EBITDA grew from $1.3bn to $2.7bn (13% per year) as margins increased from 37% to 44%. Shares went from $31 to $133.

  

• 2019-2024 — Both revenue and EBITDA grew ~47% (total) during this period as margins were flat around 44%. Shares went from $133 to $163.

• 2025 — Growth slowing below industry levels as new product launches disappoint leading to guidance cuts. Shares fell from $163 to $126.

• 2026E — Another downward revision in guidance during 1Q26 results and key portions of the business turning negative YoY. Shares fell from $126 to $77 (today).

Animal health is a ~$50bn market growing 5-6% annually (lots of tailwinds). The market is split into:

1. Livestock — supporting production of animal protein (beef, dairy, swine, poultry, fish, etc.)

2. Companion-animals — supporting pet animals (mainly dogs, cats, and horses)

Customers are veterinarians or third-party veterinary distributors. So vet visits and those trends are a key driver for companion sales. Visitation trends have been negative for a few years now:

Zoetis is the market leader in animal health (slide below is from the 2013 split-off presentation):

The product portfolio is fairly diverse across categories. Parasiticides is perhaps the most lucrative market (think flea and tick medicine) since it’s recurring in nature.

Product concentration:

• Parasiticides — Simparica/Simparica Trio = 16% of 2025 sales

• Dermatology — Apoquel/Apoquel Chewable = 12% of sales

• Cytopoint (dermatology), Librela (pain) and our ceftiofur line (anti-infectives) = 14% of sales

• Top 10 products = 57% of sales

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Why it’s interesting…

Shares are down from a peak of $200+ to ~$77 today (60%+ drop). For a $32bn market cap (today) with low leverage in a growing industry, that’s fairly unusual. The stock is looking cheap (~11x 2026 earnings) and you likely have growth/quality investors selling to value + mean-reversion buyers.

So why are shares beaten down?

Let’s start with with how they got here…

At the time of the Pfizer split, Zoetis had 2 things going for them: (1) a massive cost reduction story; and (2) a period of meaningful blockbuster product launches.

Those cost initiatives produced a multi-year run of significant margin improvement (37% to 44% EBITDA margins), and it was a host of actions that contributed (cut low-margin SKUs, consolidating teams, manufacturing improvements, overhead reduction, etc.):

For product launches, the 2013-2020 period produced several blockbusters: Apoquel + Cytopoint in dermatology and Simparica + Simparica Trio in parasiticides. This group now produces ~one-third of revenue (>$3bn annually).

Librela + Solensia in pain and sedation were supposed to be the next batch of blockbusters launched in 2021. After a solid start, sales are now declining from safety issues. The 2025-2026 product slate looks less promising with launches designed to protect/extend existing products.

Translation: after a solid start at the time of the Pfizer spin, Zoetis has a lighter pipeline at a time where competing product launches are eating into core categories. Will touch on the pipeline more later.

How are the fundamentals?

This is where things start to get interesting…

We can see the “reset” in sell-side estimates (black line = share price, blue line = NTM EPS estimates, orange line = 2Y forward EPS estimates):

While earnings are still growing, that rate of growth is slowing and they are nearing an inflection where EPS growth could turn negative (orange line 2-year forward estimates still collapsing).

Historic financials are what you’d expect from a perceived “compounder” — 8% annual revenue growth since 2016, 10% EBITDA growth, and 14% EPS growth, all with modest leverage.

Aside from a few acquisitions, most/all free cash flow is going to buybacks and a modest dividend (2-3% yield at today’s price). The buyback pace hasn’t slowed recently ($606m in 1Q26 vs. $443m in 1Q25), but it’s potentially a risk if they opt to reinvest for growth.

Underlying these fundamentals are a “domestic vs. international” and “livestock vs. companion” story too.

• U.S. sales for livestock products were consistently declining from 2023-2025, and companion animal sales fell 11% in 1Q26 (bad)

• International sales are consistently growing in both livestock & companion markets from 2023-1Q26 (good)

Q1 results highlight how quickly things are changing here…

US sales, which are >50% of total sales, fell 8% YoY with the companion animal business falling 11%. Management called out vet visit trends and increased competition (Elanco and others knocking on the door).

While International sales grew 17% YoY in Q1, they included a $100m benefit from a “fiscal year realignment.” Non-US subsidiaries were historically reported on a one-month lag which is being eliminated, so growth was really ~6.5% which is still good.

One final comment on the fundamentals before reviewing the outlook…

EBITDA margins are consistently 43-44%.

While that sounds amazing, peers are half to two-thirds that amount (~20% for ELAN, VETO, VIRP and ~33% for MRK animal health segment). If competition is rising, are ZTS margins more likely to compress down to peer levels? Probably… At the time of the 2013 spin, margins were 37%.

Hmm…

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What’s the outlook from here? How can they turn the corner?

Guidance calls for ~$9.8bn revenue (2-5% growth) and $6.90 EPS (7-9% growth) at the mid-point. These were revised lower from an original 2026 guide of 3-5% sales growth and 9-11% EPS growth (market position worsening).

EPS guidance assumes a 419-421m share count so maybe there’s an opportunity for repurchases to contribute here.

The question is whether guidance adequately reflects near-term pressure from competition and pricing.

Beyond 2026, there are several large and untapped markets in play (kidney disease, oncology, cardiology, obesity) which have a $7-9bn TAM according to management:

Most of the products targeting these markets aren’t set for launch until 2027-2028+ so you’re looking at a business where the current portfolio will mostly drive results for the next 12-24 months and ~half that portfolio is facing near-term headwinds.

Hmm…

What could shares be worth?

Maybe there’s some light at the end of this tunnel…

First, this stock has completely re-rated to never-before-seen valuation levels. Shares were selling for 20x earnings (or more) right out of the gate in 2013 and 25x earnings for most of 2025.

Today, the valuation is half that.

There are several pure-play animal health comps with varying product & geographic mixes (MRK, IDXX, ELAN, VIRP, PAHC, VETO). That group is trading at 17-18x earnings and 10-12x EBITDA. As of today, ZTS is the cheapest in the group despite being the market leader.

What’s fascinating is this chart of ELAN’s historic valuation levels.…

Shares were levered >5x with low/no sales growth and declining earnings. The stock got as cheap as 9.7x earnings / 9.3x EBITDA. That’s pretty much where ZTS is today… Hmm…

My take on ZTS valuation:

• Upside — Let’s say the pipeline pans out and they successfully launch at least 1-3 new blockbusters by 2028… At 15-20x earnings of $8.00-8.10 (current 2028 sell-side estimates) = $120-160 per share or 56-108% upside.

• Downside — Let’s give ZTS some credit for revenue growth since this is a growing market and they’ll still have sizable product launches in 2027-2028. Assuming $10bn revenue (vs. $9.8bn 2026 guide) and 37% EBITDA margins (2013 levels) = $3.7bn EBITDA. A low-end 8x multiple with $7.1bn net debt and 420m shares = $54 per share or 30% downside.

I’ll call this a 2-3x upside/downside ratio.

Compelling…

Summing it up…

For the upside case to play out, you have to believe: (1) the drug pipeline is solid and will produce a few winners by 2028; (2) that guidance/expectations adequately reflect current weakness in the existing portfolio; and (3) that margins are sustainable despite increasing competition.

In my view, that’s a lot of stuff to get right…

On the bright side, a “much worse looking” ELAN back in 2023-2025 wasn’t trading much cheaper than ZTS today. And don’t forget, this is still a lucrative + growing end-market with volume tailwinds.

There’s a lot more going on than can be covered in a brief write-up like this, but the core bet here is mean reversion. I’ll add this to my watchlist and at least take a cursory look at competitors to get a better sense for the market.

Disclosure: no position in ZTS.

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Resources:

• 2013 spin-off docs (S-1)

• 2025 10-K

• 1Q26 earnings presentation

• 2023 investor day presentation materials

• Sale + spin-off set to close mid-2026

• Shareholders get $14.50-16.50/share distribution + spin-off

• Stub shares trading at implied 4-5.5x EBITDA with ~2x leverage

• SpinCo has earnings tailwinds in 2027-2028 as “loss contracts” roll off

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 05/01/26 — Ice cream spin-off Magnum looks cheap

• 04/21/26 — Guide to analyzing “asset plays”

• 04/13/26 — Beaten down CPG stock Nomad Foods ($)

• 04/09/26 — My 30 second review of super cheap Gen Digital

• 04/06/26 — Upcoming spin-off at Middleby ($)

• 03/23/26 — A look at GameStop fundamentals

• 03/16/26 — Green Dot upcoming sale + spin ($)

• 03/09/26 — CBIZ growth to value transition

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Quick Value

Enviri Corporation (NVRI)

Ticker: NVRI
Price: $4 (implied stub)
Shares: 84.2m
Market cap: $340m
Valuation: 5x EBITDA
Theme: spin-off

Background

In Nov 2025, Enviri announced they will sell their Clean Earth business to Veolia for $3.04bn and “spin off” the remaining businesses as New Enviri to shareholders.

A few things to note about this transaction:

• Clean Earth was unquestionably the crown jewel inside Enviri (growing, profitable, high margin, secular trends, etc.)

• The $3.04bn sale price was a huge premium at ~19x 2025 segment EBITDA

• Shareholders will get a big chunk of the sale proceeds at closing via $14.50-16.50 per share dividend

• Remaining segments will roll into into “New Enviri” (maintaining the NVRI ticker) and spun-off to shareholders in a fully taxable spin

• New Enviri is “a leading provider of critical environmental services and material processing to the metals industry and innovative equipment, after-market parts and services for the rail sector” with ~$1.2bn pro-forma revenue and 2x leverage

• Spin-off docs have been filed and this transaction was already approved by shareholders with a mid-2026 expected closing timeframe

Why it’s interesting…

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• Recently spun off ice cream segment from Unilever

• Shares flat since Dec 2025 spin and down 25% from Feb 2026 peak

• Stock is trading at 13x NTM earnings and 8x EBITDA with 2.4x leverage

• Turnaround plan targeting major growth in EBITDA & FCF over 2-3 years

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 04/21/26 — Guide to analyzing “asset plays”

• 04/13/26 — Beaten down CPG stock Nomad Foods ($)

• 04/09/26 — My 30 second review of super cheap Gen Digital

• 04/06/26 — Upcoming spin-off at Middleby ($)

• 03/23/26 — A look at GameStop fundamentals

• 03/16/26 — Green Dot upcoming sale + spin ($)

• 03/09/26 — CBIZ growth to value transition

• 03/02/26 — Ziff Davis sum of the parts ($)

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Quick Value

Magnum Ice Cream Company (MICC)

Ticker: MICC
Price: $15
Shares: 615.6m
Market cap: $9.25bn
Valuation: 13x P/E
Theme: spin-off

Continuing my review of beaten down staples & CPG stocks, today I’m looking at recently spun-off Magnum Ice Cream Company (MICC).

Note: the company released Q1 results in the midst of my writing and (naturally) the stock was up big… I have not yet incorporated those results into this.

Back in Dec 2025 (at the time of the spin), I took a very brief look and didn’t like the combination of increasing costs/investments and no short-term guidance.

Background

Magnum is the recent (Dec 2025) spin-off of Unilever’s ice cream division with brands like Magnum, Ben & Jerry’s, Klondike, Yasso, Breyer’s, and Popsicle. It’s the global industry leader with 21% market share and the only pure-play publicly-traded ice cream company.

Unilever originally announced the spin March 2024 and pitched it as having a “very different operating model” compared to their other businesses.

Ice cream is a €75bn segment within the €475bn global snacking industry and growing 3-4% annually.

MICC is the largest player with about 21% global retail market share and four of the five largest global ice cream brands. Froneri is the #2 player with 11% market share as a privately-held 50-50 joint venture with Nestle. And the rest of the industry is tucked inside larger CPG businesses (Häagen-Dazs owned by General Mills, etc.).

There are 2 markets within the ice cream industry: (1) at-home (think: buying a pint at the grocery store); and (2) away-from-home (buying from a vending machine at the mall).

The away-from-home business seems like the crown jewel here and may have a legit moat to it…

MICC operates a fleet of 3 million freezer cabinets, which is 2x larger than the next competitor (according to management). These are basically branded vending machines at convenience stores, malls, retailers, etc. This is a pretty unique (albeit capital intensive) asset for distribution and branding.

Cabinets are a key part of this as a critical enabler of growth and sometimes overlooked or misunderstood moat in our business. Our cabinets are like soft drinks chillers. They provide unique advantages that help us to maintain and grow market leadership. In 2025, we increased cabinet CapEx by around 10% to grow our market-leading fleet of 3 million cabinets.

The supply chain and working capital management behind these 3 million cabinets are crazy… some customers (like 7-Eleven) keep the cabinets plugged in year-round and navigate the seasonal sales volumes… for others, MICC picks up the cabinet during off-peak season, stores it in a cold-chain warehouse, and redeploys it for the selling season. They do this every year for 500-700k of their 3m fleet.

That sounds like an incredibly high barrier to the away-from-home market given the supply chain demands and capital intensity. And it’s starting to make sense how this business doesn’t mix with non-cold-chain products.

There are other nuances that I’m glossing over like the regional/geographic sales mix and profitability differences by geography. Short story: U.S. is the largest market, emerging markets have less per capita consumption and are growing much faster.

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Why it’s interesting

The more I spend time on MICC, the more it looks like a classic botched spin-off with poorly communicated carve-out results & expectations (although this communication is improving as of 1Q26).

The initial pre-spin investor day presentation was held Sep 2025 and failed to include any firm guidance for 2026 or 2027. Instead, they alluded to 2028-2029 results following a period of increased investment and transition. Investors drew their own conclusions and expectations were high(er).

Then Q4 2025 results came out and the bar was reset. FY 2025 revenue was basically flat at €7.9bn, adjusted EBITDA fell to 6% to €1.26bn, and margins fell to 15.9% from 16.9%. Free cash flow was down to €38m from a comparable ~€600m. Net debt closed at ~€3bn, and the stock sold off hard after debut results (down 18-19%).

So what’s exciting about this?

1) Fundamentals + value creation algo

Starting with high level results for the past few years (note: Unilever separately disclosed ice cream segment results in 2020-2021):

It’s a straightforward financial picture: sales & EBITDA are mostly flat with margin degradation and increasing capex levels. Ick.

As a standalone company, management laid out the following “value creation framework” for 2026-2029: 3–5% organic sales growth, 40–60bps of annual EBITDA margin improvement, and €800m to €1bn FCF by 2028-2029. Promising.

If you do the math on 3-5% sales growth and 40-60bps margin expansion (17-18%), you’ll get somewhere between €1.5-1.7bn EBITDA by 2028 (sell-side is at €1.49bn). This works out to ~6-7x EBITDA and ~8-10x FCF on today’s price.

Seems cheap.

So why does this opportunity exist?

Carve-out results and guidance are incredibly confusing and messy (it’s never good when a spin-off fails to deliver a short-term guide at a pre-spin investor day). A look at forward EPS trends show this failure to bridge the carve-out numbers to short-term standalone results.

That’s just one piece of it…

On the other end, the short-term cash flow picture is very murky. Management says this business had ~€600m of pro-forma FCF in FY2025 when ignoring separation and transition costs. But those adjusting items took FCF near zero last year.

Transition costs will eat into a big chunk of 2026-2027 FCF…

Separation costs alone are €800m (10% of current market cap) with €365m coming in 2026 and €150m in 2027 before winding down to near zero in 2028.

On top of that, restructuring will cost ~0.8% per year on average. So here we are, management is telling us “this is complicated and we cannot guide to it.” Which amplifies the discounted valuation.

Analysts are expecting 200m+ FCF in 2026, but I think there’s a good chance it will be zero or negative this year. My math… 1.3bn EBITDA minus 180m interest, 160m taxes, 400m capex, and 425m separation & restructuring = 135m before working capital changes.

How will they achieve the 2028-2029 targets?

It’s clear this business had some deferred maintenance under Unilever’s ownership; fortunately, it operates in a market that’s already growing 3-4% annually. MICC volumes grew 1.1% and 1.5% in 2024 and 2025; and they’re guiding to 80bps of annual volume growth from here. So volumes is up, that’s good.

The other pieces to the margin improvement plan are fairly straightforward:

1. Net price declines of ~80bps per year — cost inflation at 200bps per year with price increases offsetting 120bps of that = roughly 80bps of price “investment” per year (this is likely a sales growth contributor)

2. Productivity improvements — a €500m cost saving plan is underway with €260-270m savings expected during 2026-2028 (this is an earnings contributor)

3. Re-investment — higher marketing spend and increased capex levels add another 0.5% per year (again, likely a sales growth contributor)

Below are details on the timing and functional areas behind the cost saving program. If you net out the other pieces (volume, price/cost, and re-investment), this is the primary driver for the 40-60bps of annual margin expansion.

It’s also possible that commodity cost inflation headwinds in 2025-2026 turn into tailwinds for 2027. Cocoa represents ~22% of input costs and went parabolic the past 2 years. Here’s a 10-year chart of cocoa prices:

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3) Valuation

For starters, there are 616m shares outstanding x $15 (USD) = $9.25bn market cap. At $1.17 per €1, that’s a €7.9bn market cap. Net debt is €3bn for a €10.9bn enterprise value.

• Downside — Let’s assume EBITDA sticks around €1.2-1.3bn with €3bn net debt. At 6-7x EBITDA, that’s $10 per share or 33% downside.

• Upside — I’m thinking about 2 approaches here:

  • First, if they achieve the €800m to €1bn FCF target and trade like the better CPG stocks (15-20x earnings) = $23-38 per share… that’s 50-150% upside

  • Second, the growth algorithm works out to €1.6-1.7bn EBITDA in the outer years… at 10-12x and no change in debt = $25-33 per share… that’s 67-120% upside

So that works out to 2-4x upside/downside ratio… Hmm…

Before getting too excited, it would make sense to: (1) handicap the odds of success (management teams rarely hit these multi-year targets with extreme precision); and (2) discount those 2029 results back to today.

Summing it up…

This situation reminds me of Kellogg (KLG) in 2023. That spin had a significant margin + earnings growth story but required a few years of reinvestment and cash outflows. It came out at a huge discount to peers and was eventually acquired as they made progress on long term goals.

I’m doing more work on these staples & CPG stocks. I like the Nomad Foods management change setup and MICC seems like a compelling 2x over a few years (also with a much cleaner-than-industry-average balance sheet). No positions yet, but I’m digging.

As usual, I love glossing over the risks when doing these write-ups… Input costs are killing margins right now: cocoa, dairy, sugar, energy, freight, and packaging all matter. Health trends, including GLP-1s, are a real risk; although management believes this will lead to more “premiumization.”

Disclosure: no position in MICC as of this writing

P.S. if you enjoyed this write-up, give it a like + share; help me spread the word :)

Resources:

• MICC spin-off filing (i.e. Form 10 equivalent)

• Sep 2025 capital markets day presentation (pre-spin)

• Sep 2025 capital markets day transcript

• 4Q25 earnings presentation