• 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.

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?

Read more

• 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.

Share

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:

Share

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.

Share

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

This is a multi-part series covering my favorite investment themes (an ode to Peter Lynch’s six “story types”). Today, I’m looking at asset plays.

This is part 9 covering 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. Plenty of case studies and actionable ideas included.

As a recap, we’ve already covered:

• Part 1 — beaten down shares (my favorite source of idea generation)

• Part 2 — spin-offs (my favorite source for actionable investments) ($)

• Part 3 — post-reorg equities (infrequent but actionable)

• Part 4 — management changes (good ones are uncommon but actionable) ($)

• Part 5 — insider buying (a checklist of what to watch for)

• Part 6 — activist investing (highly actionable source of investments)

• Part 7 — public LBO & deleveraging stories (volatile ideas good for the watchlist)

• Part 8 — inflection investing (the crown jewel for big returns) ($)

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Asset Plays

An overarching theme with these asset-based ideas is that there’s some undiscovered value hiding somewhere in the business or on the balance sheet. It could be a hidden gem segment/division or a 40-year old property marked at cost.

Another theme here is “what’s the catalyst?”

Typically, an undiscovered asset tucked in the back corner of a balance sheet doesn’t become “priced into” a stock until there’s some monetization or realization event. Many value investors have gone to the graveyard known as sum-of-the-parts (SOTP) investing.

To make things more complicated, there are subtle differences in the sub-genres of asset-based investing. Here’s my list (I’ll comment on my favorites at the end):

1. Sum-of-the-parts (SOTP)

2. Stub shares

3. Hidden assets

4. Low P/B

5. Net-nets

6. Liquidations

7. Cash shells

8. Balance sheet transformations

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• Cheapest stock in a severely beaten down industry (30-50% declines on average)

• Shares trading at 5.7x earnings and 6.5x EBITDA with 3.6x leverage

• New CEO started Jan 2026 = management change situation

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:

• 04/09/26 — 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 ($)

• 02/16/26 — Recent merger at Dauch yielding huge synergies

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Quick Value

Nomad Foods (NOMD)

Ticker: NOMD
Price: $10
Shares: 142.1m
Market cap: $1.4bn
Valuation: 5.7x P/E
Theme: management change (+ beaten down)

Staples and CPG brands are getting clobbered lately with most stocks down 30-50% over the past year:

Instead of working A-Z, I figured I’d just start with the cheapest name on the list… here are my notes…

Background

Starting with some history:

• 2006 — Unilever sold European frozen food brands Birds Eye and Iglo to private equity firm Permira for €1.7bn.

• 2014 — Nomad was founded as a SPAC in 2014 by Noam Gottesman and Martin Franklin (Jarden founder and had a few other successful SPACs), they still own ~15% of the company today.

• 2015 — Nomad acquires Iglo Group for €2.6bn from Permira at an 8.5x EBITDA multiple.

• 2016-2021 — Sales grew (in part from €1.2bn spent on acquisitions) from €1.9bn to €2.6bn and shares steadily climbed from ~$10 to $30+ at peak before finishing 2021 around $25.

• 2022-2025 — Pandemic-era volumes declining, revenue growth entirely from price increases, cracks in CPG industry. Shares from $25 to $12.

• 2026 — Disappointing guidance during 4Q25 earnings call. New CEO kicking off turnaround (inning #1 here).

All sales come from frozen food categories and are concentrated in the Western European region. These are dominant brands with #1 or #2 positions in most markets and product lines.

Some notes about the European frozen food industry:

• Categories and markets Nomad competes in valued at ~€26bn (per annual report) = 11-12% market share

• The pandemic saw significant pull-forward in demand and a “normalization” period is still ongoing

  

• European consumption of frozen foods is still far behind US levels on a per-capita basis… management views this as a secular growth tailwind

  

• Again, the product portfolio is entirely frozen foods sold in Europe. The sales mix skews toward protein with a heavy mix of fish & seafood (33% of sales) and vegetables (25%)

  

• Nomad noted they had 50%+ market share in “core” product lines (70% of revenue) during their 2020 investor day… as of 4Q25, that position fell to 39% (though still the #1 brand in most markets)

Why it’s interesting…

I wouldn’t characterize Nomad as a special situation, but it does have certain elements. The 2 things that get me excited here: (1) it’s the cheapest stock in an industry getting hammered lately; and (2) it’s a management change story with a relatively new external-hire as CEO.

1) New Management

Let’s start with the management setup since it’s easier and more interesting…

From my “guide to management changes” article (link below), I laid out a checklist of things I look for in a new CEO:

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A quick backstory (or jump straight down to the idea):

On a personal level, the past few weeks/months have been absolutely nuts — ~20,000 miles traveled for one of our OpCos, closed on an acquisition in the insurance space, completed a divestiture within an OpCo, knocked out a balance sheet recap, and wrapped up the first part of a (first ever) capital raise…

That left very little time to explore new stock ideas at a time where the markets had/have lots going on!

So last night, I’m flipping through a few names on my watchlist, got to Gen Digital (GEN, $19), and it completely stopped me in my tracks…

This idea first hit my radar in late 2019 when Symantec (as Gen was known back then) sold their enterprise software business to Broadcom for ~$11bn and become a pure-play consumer software company with $1.50+ earnings power.

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Here is my 30 seconds of (re)work on the idea:

1. First, I needed a refresh on what the company does (it’s been 5 years since I wrote about it) — Turns out they acquired some additional brands which now include Norton, LifeLock, Avast, and MoneyLion as their core products (it’s like a better version of Ziff Davis (ZD) for those who follow it)… revenue is mostly subscription-based with a “freemium” model in some cases, MoneyLion is a fintech neobank so it’s a slightly different model. Flipping through my 5-year-old quick value note and I saw this “Big Goals” slide suggest ~$3 earnings power in 3-5 years time, from a $1.44 starting point in FY21 (we’ll come back to this):

   

2. Then I checked the chart which shows it went nowhere for 5+ years — GEN is a major market underperformer and almost certainly getting caught up in the “AI disruption” narrative (shares down from $30+ to $19). Maybe a bit of a falling knife here?

   

3. Then I looked at the valuation — It’s way off historic multiples… at 7x forward earnings, GEN trades at nearly a 40% discount to its 5-year median P/E multiple (which would make this a $30+ stock). [The light-orange-shaded area behind the P/E multiple are earnings per share.]

   

4. Next, I wanted to see what earnings trends looked like — If the stock is getting pummeled, then earnings must be awful right? Nope. They’re steadily making progress on the “$3 per share earnings power” laid out in the “Big Goals” slide from earlier. In fact, analyst estimates have Gen at $2.87 EPS in FY27 (calendar 2026) which is spitting distance from their original plan and another year of 10%+ EPS growth.

   

I’m making this out to be a simpler story than it probably is… there are some risks and counterarguments here:

• There’s a decent amount of debt — $8bn net debt on $2.5bn EBITDA = ~3.2x leverage (and 5.3x trailing free cash flow of $1.5bn)

• I’ve done zero work on churn or customer retention for these consumer software products which is clearly important to the thesis

• MoneyLion was acquired in April 2025 so growth benefits are rolling off — on the other hand, management is restarting share buybacks with $305m spent in the past quarter (~2.6% of current market cap)

Summing it up…

There are 606m shares outstanding x $19 = $11.5bn market cap. Net debt of $8bn makes it a $19.5bn enterprise value.

FCF is consistently >$1-1.5bn (10-15% FCF yield) and while management is targeting less than 3x leverage, they are starting to balance debt paydown with buybacks.

A simple mean reversion thesis would have this trading close to $30 per share on 10-11x earnings. That’s ~60% upside from here. What about the downside? Ziff Davis might be a decent proxy, and at lows it traded around 4-5x earnings. On $2.60-2.80 per share, I’ll call that $11-14 downside target (25-40%).

So this is something like 1.5-2.5x upside/downside ratio.

The market seems to be pricing GEN like a melting ice cube consumer software business. That group is down 20-30% over the past year while trading at 7-8x forward earnings at the moment:

Would you pick GEN out of the options on this list?

Hmm…

Disclosure: no position in GEN as of this writing, but I’ll probably add a starter position by week’s end; and then I’ll actually open up the 10-K and do some homework :) DYODD

P.S. if you enjoyed this post, give it a “like” or a “share” — thanks for your support :)

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• Shares are flat since 2017 — a “coiled spring” chart

• Upcoming spin-off (2Q26) of smaller and faster growing food processing business

• Stock trading at ~14x earnings with solid FCF conversion and modest 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.

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Recent write-ups include:

• 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 ($)

• 02/16/26 — Recent merger at Dauch yielding huge synergies

• 02/09/26 — Wholesale changes in the VDL portfolio ($)

• 02/02/26 — A look at Allison Transmission’s recent acquisition

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• After the meme stock era, CEO Ryan Cohen has stabilized ops at core retail business (profitable for first time since 2018)

• Board announced significant long-term incentive comp plan for Cohen in Jan 2026

• Cohen shared thoughts around “transformational” acquisition(s) in Jan 2026

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.

Subscribe now

Recent write-ups include:

• 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 ($)

• 02/16/26 — Recent merger at Dauch yielding huge synergies

• 02/09/26 — Wholesale changes in the VDL portfolio ($)

• 02/02/26 — A look at Allison Transmission’s recent acquisition

• 01/26/26 — Multi-pronged special sit Teleflex ($)

• 01/19/26 — A look at the KBR upcoming spin-off

Quick Value

GameStop Corp (GME)

Ticker: GME
Price: $23
Shares: 448m
Market cap: $10.3bn
Valuation: 18x pre-tax earnings
Theme: Jockey

I’ll admit, this one is pretty far afield for me… but I’ve been curious about the news around this situation, enough to take a closer look. Here are my notes…

Background

GameStop operates 3,200 retail stores (as of FY24) across the U.S., Canada (since closed), Australia, and Europe selling video game hardware and accessories (consoles, controllers, etc.), software (new and used video games), and collectibles (apparel, toys, trading cards, etc.).

Some history is required to get the full picture here (note: GME uses the retail fiscal year so I’m mixing some fiscal and calendar years here):

• 2002-2016 — GameStop came public via IPO (~$2-3 per split-adjusted share). Revenue grew steadily from ~$1.1bn to $9bn+ and store count expanded from ~1,000 to >7,000. Shares went from $2 to $6.

• 2017-2019 — Secular decline fears ramped. Sold Spring Mobile AT&T retail stores. Revenue from $9bn+ to ~$6bn and saw first year of operating losses (FY18). Ryan Cohen takes initial stake in 2019. Shares went from $6 to $1.50.

• 2020-2022 — The “meme stock” era. Shares peaked at ~$120 (split-adjusted). Cohen named Board Chairman in 2021. Operating losses totaled $630m from 2020-2022. Shares from $1.50 to ~$18.

• 2023-2024 — Cohen named CEO late 2023. Store closures accelerate (~4,400 to ~3,200 at end of FY24). Operating losses fall from >$300m to $26m. Shares from $18 to $32.

• 2025-2026 — Store closures paving way to first year of profitability since 2018. Raised $3.4bn equity at ~$24.50/share. Raised $4.2bn from 0% convertible notes with conversion prices around $30. Announced long-term incentive plan for CEO Ryan Cohen. Shares from $32 to ~$23 (today).

Quite the journey for this company…

Today, Cohen owns roughly 9% of GameStop shares and this “bet” centers squarely around his capital allocation plans. If you’re unfamiliar with Cohen (founded and sold Chewy, activist investments, etc.) you can catch up via this wikipedia page.

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Why it’s interesting…

No amount of fundamental analysis will paint a picture for what GameStop will look like in 3-5 years. An investment here is mostly (entirely?) tied to the optionality from CEO Ryan Cohen and how they plan to deploy $9bn+ cash & securities. (Full transparency: I like bets on optionality.)

1) Fundamentals (the present)

Here is the overarching fundamental picture from 2016-3Q25:

As of Q3, pre-tax earnings are ~$1 per share with $11.60 per share in net cash & securities.

How is it possible that a company lost $1bn+ from 2019-2024 and is now turning in $220m+ EBIT at the operating company level while revenues continue to decline?

There are 3 factors helping out here: (1) gross margin is improving from a higher mix of collectibles which are more profitable; (2) SG&A continues to decline; and (3) leases are rolling off fast.

Through 3 quarters of 2025, collectibles were >30% of sales vs. ~16% in FY2022. At the same time, gross margins went from 23% to 32%. Hmm… how sustainable is this trend?

Next, SG&A is running $913m over the past 12 months vs. $1.7bn as of Oct 2022. That’s a 46% decline in overhead while revenue declined 36%. So both gross profit and overhead are contributing to the earnings turnaround.

Last, Cohen stepped into an enviable lease situation with ~53% of store leases expiring in FY2025 (as a reference, Circuit City had only ~10% of their leases expiring within 4 years when they filed for bankruptcy in 2009).

It’s no surprise they’re quickly moving toward profitability with a chance to walk away from significant chunks of underperforming stores. In fact, I wouldn’t be surprised to see earnings trends improve throughout 2026 based on the lease schedule alone.

What is the current earnings power at GME?

At the operating company level (core GameStop stores), we have a business producing $220m EBIT on $3.8bn total revenue.

In addition, the company’s pile of cash & securities produced $240m net interest income over the last 12 months and a run-rate closer to $360m.

Combined, that’s $220m operating company EBIT + $360m investment EBIT = $580m or $1.30 per share (pre-tax). At $23, you’re effectively paying 17-18x pre-tax earnings for this business.

Granted, they borrowed $4.2bn at 0% interest which they’re capturing a nice spread on. Those converts will either need to be repaid or converted into equity. So it’s not quite as favorable as the picture I’m painting.

Realistically, treat it as $5.1bn net cash & securities ($11.60 per share) and $0.50/share pre-tax earnings from the retail operating company. That works out to 23x pre-tax earnings for the core business net of cash. Not super cheap.

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2) Jockey (the future)

Forget all of that fundamental stuff for a moment…

Ryan Cohen has been CEO since late 2023 and we’ve (so far) seen a major improvement in core earnings and a significant amount of capital raised. What’s next from him?

There are 2 “developments” that seem important here:

1. The board granted Cohen a massive long-term pay package tied to performance

2. Cohen stated he wants to acquire a large, cash-flowing, consumer business

The pay package has major shareholder alignment. Cohen takes no salary, receives no cash bonuses, and no other stock incentives.

Instead, he has an “all or nothing” incentive plan consisting of options to buy 171.5m shares at a price of $20.66 broken down into 9 tranches with hurdles for market cap and cumulative EBITDA:

I like that it’s structured as pre-defined options which should prevent excessive dilution. We’re still waiting on the proxy filing to get important details and disclosures around this package which has not yet been approved by shareholders.

So what will they (he) buy?

We’re now reading tea leaves here, but it’s certainly interesting to speculate. Here are comments from Cohen during a recent Jan 2026 CNBC interview:

Hmm…

It sounds like conversations are potentially already in motion here, some of this commentary reads as though a 2026 timeline could be realistic.

What could they be looking at? Well here are some consumer businesses with a market cap between $10-40bn that are trading between 10-20x earnings:

There are several retailers in here which make sense from the growth comment (LULU, DECK, ULTA, HAS). Best Buy (BBY) is intriguing since it could have some synergy/overlap with GME stores and has a market cap below $15bn. Plenty of homebuilders, casinos, and auto parts on the list as well, but do those fit the “durable” and “growth” criteria?

The biggest deterrent (to me) would be seeing GME become another MicroStrategy bitcoin treasury stock, but Cohen said he views crypto as mostly an inflation hedge.

Summing it up…

At this point I’m just keeping some notes for myself and speculating on what this business could look like in a few years (different is the answer).

Things I’d want to understand or think about further:

1. If GME walks away from ~half their store base, what could earnings look like at the core retail business?

2. What will they do with the retail concept 3-5 years from now? Does it stabilize or do they sell it after getting profitable?

3. What acquisition targets are truly realistic? Both from a fit perspective and a size/affordability perspective.

Leave a comment if you’ve thought deeper about this one or what the company could be looking at acquiring.

Disclosure: no position in GME

P.S. I have not read any of Burry’s work on this stock.

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• Small-cap financial services company selling a division and distributing cash (~76% of current share price)

• Stub shares in newly created BankCo trading at implied 0.4x TBV and 4-5x earnings

• Significant earnings growth potential as balance sheet is repositioned 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.

Subscribe now

Recent write-ups include:

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

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

• 02/16/26 — Recent merger at Dauch yielding huge synergies

• 02/09/26 — Wholesale changes in the VDL portfolio ($)

• 02/02/26 — A look at Allison Transmission’s recent acquisition

• 01/26/26 — Multi-pronged special sit Teleflex ($)

• 01/19/26 — A look at the KBR upcoming spin-off

• 01/12/26 — Supremex is super cheap and inflecting ($)

• 01/06/26 — Shares of Cinemark look beaten down

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