• 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.

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• 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.

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So what happened?

The transaction closed in December 2014, with the following characteristics

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

• Share price: $7.08 ($1.77 pre-spin)

• Market cap: $68m

• Net debt: $0

• Trailing EBITDA: $9.9m (6.9x)

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

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

Shares steadily climbed as progress was made.

End result?

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

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

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

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

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

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

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

Happy hunting!

Colin

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

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

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

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

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

Enjoy!

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

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Top picks among special situations

In no particular order, here they are:

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• Shares down >60% from peak

• Consistent cash flow and low leverage

• Former compounder now trading at “deep value” price

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

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

Recent write-ups include:

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

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

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

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

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

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

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

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

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Quick Value

Zoetis (ZTS)

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

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

Background

Let’s start with some backstory:

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

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

  

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

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

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

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

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

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

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

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

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

Product concentration:

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

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

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

• Top 10 products = 57% of sales

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Why it’s interesting…

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

So why are shares beaten down?

Let’s start with with how they got here…

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

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

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

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

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

How are the fundamentals?

This is where things start to get interesting…

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

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

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

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

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

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

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

Q1 results highlight how quickly things are changing here…

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

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

One final comment on the fundamentals before reviewing the outlook…

EBITDA margins are consistently 43-44%.

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

Hmm…

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

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

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

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

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

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

Hmm…

What could shares be worth?

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

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

Today, the valuation is half that.

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

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

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

My take on ZTS valuation:

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

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

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

Compelling…

Summing it up…

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

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

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

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

Disclosure: no position in ZTS.

Share

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…

Read more

• 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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• Shares down 42% YTD and ~70% off 2025 highs

• Recently completed Marcum acquisition ~doubled size of company

• 2026 guidance implies 16% FCF yield with management hungry for buybacks

• After years of consistent EPS growth (17% CAGR from 2016-2024), now seeing 4-7% EPS growth in 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:

• 03/02/26 — 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

Quick Value

CBIZ Inc (CBZ)

Ticker: CBZ
Price: $29
Shares: 62m
Market cap: $1.8bn
Valuation: 6.5x FCF (2026 guide)
Theme: Beaten down

Shares are getting pummeled lately as the stock transitions from a growth story (20-30x P/E) to a value story (7-8x P/E). Let’s take a look to see if this knife is worth catching…

Background

CBIZ is the 7th largest accounting firm in the U.S. providing services like audit, tax, and advisory work.

Historically, CBIZ has been an active acquirer of smaller firms, completing more than 120 acquisitions since 2008.

In 2024, they closed a substantial merger with 13th-ranked Marcum to become the 7th largest accounting provider at ~$2.8bn annual revenue.

This acquisition roughly doubled the revenue base and added substantial debt to the balance sheet (the acquisition was 50% cash and 50% stock issued to Marcum).

Today, there are 3 segments:

• Financial Services (83% of revenue) — Accounting, tax, transaction services, advisory, and consulting.

• Benefits & Insurance Services (15%) — Employee benefits consulting, insurance brokerage, payroll, and HR services.

• National Practices (2%) — Managed IT services for a single client dating back to 1999 (runs on 5-year contract renewals set to expire Dec 31, 2028).

Revenue is mostly fee-based in the core accounting segment (Financial Services) while Benefits & Insurance is commission-based (brokerage) and fee-based (consulting, payroll, etc.). The majority of revenue is recurring (more than 75%).

Why it’s interesting…

This name definitely checks the box for beaten down. Shares have round-tripped over five years from $30 (2021) to $90 (2025) and back below $30 as of this writing (the stock is down 42% YTD).

But why are shares getting killed?

At first, I thought it was purely an “AI disruption” stock. Eventually, Claude will manage your books and do your taxes, right? I believe this is partially a contributor, but the story is more nuanced than that.

From 2016-2024, earnings per share grew at a 17% annual rate from $0.76 (FY16) to $2.67 (FY24). In fact, each year saw at least 10% YoY growth in earnings. Pretty impressive even considering most of it was acquisition related. In addition to the 17% EPS CAGR, the share count remained flat and leverage stuck below 2x throughout that period. Sign me up!

Then the Marcum acquisition closed in late 2024 which doubled the size of the company, pushed leverage way above norms, added dilution, and flipped the story from “tuck in acquisitions” to “organic growth + buybacks.”

It was a growth stock and now it’s a value stock.

Left for dead.

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Looking at the fundamentals, you can see the consistent growth + margin expansion playing out. Share issuance was minimal and leverage consistently between 1-2x. The Marcum acquisition closed ~Nov 2024 with results fully embedded in 2025 and 2026E figures:

2026 guidance calls for modest revenue growth (2-5%) and earnings growth (4-7%). Both of which are way below long-run growth rates; although historic performance included plenty of inorganic growth.

Unpacking this outlook a bit further…

Revenue growth does not include any acquisitions, and with leverage >3x, plus a desire for more buybacks, it seems unlikely CBIZ will pursue any acquisitions in 2026. EBITDA growth comes from revenue growth and merger synergies offset by higher planned wages and incentive comp.

To recap: growth is slowing and leverage is 1-2x higher than “normal” levels.

So where does the company go from here?

We have some Soros-level reflexivity kicking in here…

Management was already excited by the prospects of share repurchases (they spent $160m in 2025 at an average share price of $66).

Shares are now down 56% from the average buyback price in 2025 and management is signaling they’re willing to extend their 2-2.5x leverage target in favor of buybacks. Here are their comments from the 3Q25 earnings call:

Given the opportunity we've had to allocate capital to share repurchases in 2025, the timing for achieving this range may shift to 2027. At our current valuation, we believe share repurchases are accretive.

The stock is trading at 6.5x FCF and 7.7x low end EPS guide. Way below long-run average multiples. Could we see a flurry of buyback activity here?

At this price, they could easily engineer 15% EPS growth in 2026.

Low end guide of $3.75 per share equates to $233m net income at a share count guide of 62m. If they can get shares down to 56m = $4.15 EPS (15% higher than the $3.61 put up in 2025).

That growth would require a 6m share buyback. At $30, they’ll need to spend $180m. At $33, they’ll need to spend $200m. Those levels still allow for a 0.25x reduction in leverage too.

Hmm…

What about the AI risks?

Things are moving fast and it’s hard to handicap what will happen to these consulting businesses (see RGP for an example of the downside scenario).

CBIZ clients are mostly medium-sized businesses needing professional guidance. Thinking of my own $30m company (perhaps a reasonable proxy for a CBIZ customer?) and with our complexity, there’s little (if any) chance I’d bring this work in house even with the advances in AI.

On the other hand, lower skill “people services” are getting killed right now. Again, look at the fundamentals for RGP to get a sense of what’s happening. The risks probably vary by service line (data entry + low level advisory as most vulnerable while compliance, payroll, audit/tax as least vulnerable).

What could shares be worth?

Peers are trading at a wide range of multiples from 7-14x earnings and 6-8x EBITDA.

From ~2017 through mid-2025, CBIZ was consistently trading between 17-20x earnings, which is a far cry from the current 7-8x earnings multiple. Here are some scenarios:

• Downside: HRB is trading at 6-7x earnings. If CBIZ sees margin compression / declining earnings ($3.50), then at 6x earnings = $21 per share or 28% downside. Obviously this could get a lot cheaper in a fear-driven sell-off.

• Upside: British competitor MHA trades at 11.8x earnings. At 11.8x my EPS estimate of $4.15 = $49 per share or 69% upside. Again, upside could be a lot more if we (ever) see a return to normal trading ranges.

This is nearly 2.5x risk/reward at the current price ($29). Hmm…

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Summing it up…

There’s a clear dislocation in shares today and perhaps it comes down to whether you believe that dislocation is a result of: (1) AI threat to this business model; or (2) the fundamentals and shifting story.

I spend a lot of time in the “main street” SMB world ($2-30m revenue businesses) and believe the risks from (1) are low for the foreseeable future.

This leaves us with the fundamentals which seems like a plausible reason for a massive sell-off. If investors were expecting a low-leverage 15%+ EPS grower and now have a high-leverage slow-grower, that will cause some turnover!

Fortunately, the recurring revenue + cash flow profile is so strong that deleveraging could/should be relatively fast. But it sounds like management has a preference for more buybacks and pushing out the deleverage target.

I may take a position here with a 2-4 quarter time horizon to see if management can bring this back to a 15-20% EPS growth story. I’ll need more time/evidence to determine the AI risk potential.

P.S. a sizeable insider buy would be an excellent “tell” for this name, but we haven’t seen much/any useful insider activity so far in 2026

Disclosure: I don’t own shares of CBZ today, but will likely start a position within the next week.

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Resources:

• 2025 Form 10-K

• 4Q25 earnings presentation

• 2024 Marcum acquisition presentation

• 2021 investor day presentation

• Maybe a most hated stock in the market? One of the cheapest in Russell 3000

• Shares are trading at 2.4x EBITDA, 3.6x FCF with 0.4x leverage

• No 2026 guidance sent shares down another 13% in Feb ‘26

• Inbound interest to acquire parts of the business ongoing

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:

• 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

Quick Value

Ziff Davis (ZD)

Ticker: ZD
Price: $27
Shares: 37.7m
Market cap: $1bn
Valuation: 2.4x EBITDA (trailing)
Theme: Beaten down

The VDL timeline as it relates to Ziff Davis:

• I first wrote about Ziff in Feb 2023 when it traded at $93. It wasn’t all that interesting at 9x EBITDA as the business was slowing post-COVID.

• Fast forward to March 2025 and at $40 it was getting more attractive.

• Finally, in Apr 2025, I took the plunge and bought the stock at $33.

• Now, it’s Feb 2026 and shares fell to $27 after reporting FY25 results.

Readers/followers are demanding some answers, so let’s take a look…

Background

Ask any boomer-aged IT person about Ziff Davis and you’ll get a hearty laugh and a “I haven’t heard that name in forever!” There’s some truth here, it’s a web 1.0 digital media business built on old school publishing principles.

What do they actually do?

There are 2 primary revenue streams: advertising (57% of FY25 revenue) and subscription/licensing (43%). It’s a conglomerate with 5 segments:

1. Technology & Shopping — Operate websites like PCMag, CNET and RetailMeNot which generate affiliate commissions (i.e. when a consumer is searching the web for “best laptops” and stumbles on a PCMag article, they click through and buy something from an affiliate website and ZD gets a cut). There are banner ads and other revenue streams, but it’s highly driven by web traffic. This segment is most “at risk” from changes in AI web search tendencies.

2. Gaming & Entertainment — IGN is a gaming news, reviews, and walkthroughs website with revenue coming mainly from display ads. There’s a healthy mix of paying subscribers at an average ~$120 per year too. This segment seems moderately insulated from AI search risks.

3. Health & Wellness — A handful of content and directory websites in this segment. Example: they operate a directory of “top doctors” for consumers looking in their area. Nearly 85% of revenue is advertising driven with small ticket subscriptions rounding out the rest.

4. Connectivity — Ookla is the main component here and likely the “crown jewel” within ZD. Since 2006, they’ve completed 66bn network speed tests and have 16k testing servers around the world. ISPs like Comcast, AT&T, etc. pay to license this data for their own network response efforts. There are ~25,000 customers paying an average ~$8,300 per year to access Ookla’s data.

5. Cybersecurity & Martech — 3 main pieces in here: IPVanish is a VPN service, VIPRE is a consumer/business cybersecurity subscription service, and Moz is a subscription service for small business SEO tools. Total subscribers in this segment are >1.2m paying ~$220 per year on average. AI risks seems low/medium in this segment.

Now, Ziff Davis only moved to this level of disclosure in the past year, so we have a limited view of segment financial history.

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• Completed mega-merger in Feb 2026

• Post-close, shares are trading at 4.5x EBITDA and 6-7x FCF

• Deal synergies are 17% of the current market cap = solid earnings growth?

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:

• 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

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

Quick Value

Dauch Corporation (DCH)

Ticker: DCH
Price: $7
Shares: 243m
Market cap: $1.76bn
Valuation: 4.4x EBITDA (2026 guide)
Theme: Acquisition

In Feb 2026, American Axle merged with Dowlais and rebranded as Dauch Corporation. To keep things simple, I’ll refer to standalone American Axle as “AAM” and the post-merger entity as “Dauch.”

Background

Dauch Corporation is a tier 1 auto supplier of driveline components (axles, driveshafts, differentials, etc.) and metal formed parts/products.

Some formative events in AAM’s history:

• 1994 — Company founded by Richard Dauch, acquired several manufacturing plants from GM.

• 1999 — IPO at $16-17 per share.

• 2017 — Acquired Metaldyne Performance Group for $3.3bn in cash, stock, and assumed debt. Sales jumped from ~$4bn to $7bn.

• 2026 — Completed merger with Dowlais Group for ~$3.2bn (cash, stock, and assumed debt). AAM shareholders own ~51% of the newly merged company.

Prior to the Feb 2026 merger, standalone AAM made driveline components (~70% of sales) for tier 1 automakers (GM, Stellantis, and Ford at ~70% of sales). Though sales have recovered from COVID 2020 lows, they are still at 90% of 2019 levels.

Standalone Dowlais was spun off from Melrose Industries in early 2023. Dowlais had fiscal 2024 sales of ~£4.3bn with ~80% consisting of driveline components (sideshafts and propshafts) and the remainder from “metal powder” components.

Perhaps the biggest benefit of this merger is the diversification away from GM, Stellantis, and Ford on a combined basis. Dowlais has a more diverse customer base with 72% of revenue from non-overlapping customers.

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Why it’s interesting…

AAM is not a highly-acquisitive company and the Dowlais merger is only the second meaningful M&A since the company came public in 1999.

That said, AAM has a checkered past of fundamentals.

They struggled for years with generating cash and reducing leverage. For reference, cumulative free cash flow was negative from 2002-2015 (14 years!).

And what did they do with the $2.4bn cumulative FCF produced from 2016-2025?

Literally all of it went to acquiring and repaying debt from the previously mentioned 2017 acquisition of Metaldyne Performance Group (MPG). An acquisition which led to no/minimal increase in EBITDA or annual cash flow.

But this is a new company…

Post-merger Dauch is now a relatively large player in the auto supplier industry with combined revenue at ~$12bn and EBITDA margins close to 14%.

What does the pro-forma company look like?

At closing, the new share count is 243m.

At $7.25 per share = $1.76bn market cap.

We don’t have a post-close balance sheet yet, but management indicated $4.2bn net debt from the 4Q25 earnings call. Call it a $6bn enterprise value.

Guidance, which includes 11 months of Dowlais, calls for $1.35bn EBITDA and $280m “adjusted” free cash flow on $10.5bn sales at the midpoint.

Cost synergies are estimated at $300m which is very high at ~10% of transaction value and 20%+ combined EBITDA. They’ll see $50-75m of these benefits in 2026 and $180m (60%) by the end of 2027. This is maybe the biggest piece of upside potential and at the same time, difficult to handicap. If they hit all $300m synergies, that would be 17% of the current market cap! This could mean easy earnings growth for years, regardless of overall auto production levels.

Restructuring costs and cash costs to achieve those synergies total $210-275m so true free cash flow will be close to zero in 2026. Management reports “adjusted FCF” as a key metric which excludes restructuring costs despite those costs totaling $577m from 2016-2025 (see chart below). And this is just standalone AAM, Dowlais also spent £212m over the past 2.5 years.

Defining a “normal” year of restructuring costs is key to determining future free cash flow levels. My guess is this bucket of $210-275m will come down over the next few years but not to zero.

I’m estimating $200-350m (true) FCF at $1.3-1.5bn EBITDA which works out to $0.82-1.44 per share. This assumes $100m of recurring restructuring costs and $500m capex (guiding to 4.5% to 5% of sales).

My big takeaway here: it’s going to take a while to reach a 2-2.5x leverage target unless I’m miscalculating the starting debt balance and leverage profile.

What are shares worth?

Estimates aren’t yet updated for the recently completed merger, but AAM historically traded at 4-4.5x EBITDA and 6-7x earnings. I don’t expect this valuation range will change much go-forward.

Taking my range of FCF estimates, I get:

• 6x low-end FCF of $0.82 = $5 per share (31% downside)

• 7x high-end FCF of $1.44 = $10 per share (38% upside)

That’s a pretty balanced risk/return setup at 1.2x. And it’s a levered cyclical, so when market volatility spikes, downside is likely higher than a rational estimate like this one.

Summing it up…

This is a sizable merger for a company not historically active in M&A. On the surface, the deal makes sense too, combining different products & customers in the driveline category.

There are easier bets in the auto supplier universe right now, but I’ll want to watch year one of this merger play out. I’d rather have more clarity on the FCF profile and balance sheet (management refers to this deal as “leverage neutral” but the pro-forma debt picture implies 0.5x incremental leverage?).

Resources:

• 2025 Form 10-K

• Merger proxy (Jun 2025)

There are likely two reasons for this: (1) the importance of private businesses to my net worth is significantly higher than public equities; and (2) my “shiny object syndrome” bleeds into public investing, causing me to prefer the idea generation phase over the portfolio management phase.

This laziness has paid off over the years as I’ve allowed winning positions a longer leash to run (and then continue running despite my desire to sell). Obviously, this had the same (negative) impact for losing positions; but so far, I’ve been right more often than wrong.

Why am I sharing this?

Because I find the easiest way for me to share “official” recommendations or personal portfolio holdings are “in bulk” with posts like these… and also as a reminder that I’m not a full-time investor :)

Here’s an example from last April when I shared 7 small-cap names I was buying during the tariff sell-off:

Of those 7 ideas — 3 were sold for a gain, still holding 2 with gains, and 2 are flat (i.e. underperforming).

Going forward, when I have recommendation updates, I’ll likely be doing them in a summary post like this one.

With that, here are some changes I’m making and a link to my “recommendations tracker” at the bottom:

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1) Auto Suppliers

Auto suppliers have been a fertile hunting ground since inventories and production volumes collapsed during the pandemic. More recently, the narrative around electric vehicles (i.e. slower adoption) is making waves in supplier valuations.

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• Compelling acquisition thesis of Dana’s off-highway business

• Stellar fundamentals: 30%+ EBITDA margins & 20%+ FCF margins

• Share cannibal: repurchased >65% of outstanding shares since 2012 IPO

• Shares trading at 8.5x EBITDA (after synergies) and 11.5x FCF (after 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:

• 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

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

Quick Value

Allison Transmission (ALSN)

Ticker: ALSN
Price: $110
Shares: 84m
Market cap: $9.2bn
Valuation: 8.5x EBITDA (after synergies)
Theme: Acquisition

I caught this quick pitch on Allison Transmission from the Barron’s 2026 roundtable issue where Meryl Witmer pitched the stock at $98. It was compelling so I thought I’d take a closer look.

Here are my notes…

Background

Quick history — Allison Transmission (ALSN) was a division within GM since the early 1900’s until it was sold to private equity in 2007. GM needed to raise cash as the financial crisis was gaining steam. PE owners Carlyle & Onex grew EBITDA from $544m in 2008 to $712m in 2011, then took it public in early 2012. It was a quick fix of an undermanaged business, they even published a little case study on it. From 2007-2018, ALSN was managed by CEO Lawrence Dewey. David Graziosi took the CEO job in 2018 after acting as CFO from 2007-2018.

ALSN is the largest manufacturer of automatic transmissions for medium-and-heavy-duty commercial vehicles. They have a dominant market position in buses and class 6-8 trucks with ~80% market share.

A fully automatic transmission from ALSN might add $3,000 to $11,000 to the cost of a vehicle, but customers typically pay this premium for the reliability in heavy/harsh use cases (example: high start/stop frequency from a garbage truck).

There is only one segment for financial reporting, but they give us a detailed breakdown of revenue mix:

• On-highway applications = 70% of sales

• Parts & service = 21%

• Defense = 7%

• Off-highway = 3%

Less than 25% of sales come from foreign markets where penetration rates of automatic transmissions are much lower (close to 5%). This is a growth opportunity and a driving force behind the Dana acquisition.

Like most auto suppliers, it’s a highly concentrated business. ALSN’s top five customers represent more than 50% of sales and the top three customers (Daimler, PACCAR, and Traton) were 20%, 13%, and 11% apiece (44% total).

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Why it’s interesting…

The Dana acquisition closed on Jan 1, 2026 so the story is shifting to what can they do with this business in a few years.

First, a look at standalone ALSN

ALSN trades at $109 with a $9.1bn market cap (84m shares outstanding) and $4.2bn net debt makes it a $13.3bn enterprise value. This includes the recently closed $2.7bn Dana acquisition.

From a purely quantitative standpoint, this business is insanely profitable with mid-30% EBITDA margins and 20%+ free cash flow margins. Most auto suppliers have 5-10% margins with a few very good operators in the mid-teens.

Industrial businesses with this margin profile typically trade at 20x earnings or more, but ALSN historically trades at ~9.4x earnings and 7.8x EBITDA. The most “expensive” it traded was 15x earnings in early 2017.

Even today, after a big run (shares are +30% over the past 3 months), the stock is still trading at “only” 11.7x forward earnings.

So if the fundamentals are good, why does the stock consistently trade so cheaply?

Two things stand out here…

One, it’s a cyclical and slow grower. Revenue and EBITDA grew 2% and 4% annually since Carlyle & Onex bought the business from GM in 2007 through 2025 (midpoint guide). Along that 18-year journey, revenue and EBITDA fell 8 times; that’s a “cyclical decline” every 2 years or so.

Where are we in the cycle today? Management believes it’s bottoming in 2025 with production down significantly vs. 2024. Sales are expected to fall 7% vs. 2024.

Next are the EV risks.

Transmissions aren’t exactly a critical component in electric vehicles, which poses some terminal risk for the core business. This is where the Dana acquisition could be a significant long-term positive. With it, the revenue mix changes across several areas:

• Product mix for axles, gears, and gearboxes moves to pro-forma ~30% of sales

• Geographic mix for international markets moves from 22% to 44%

• End-market mix shifts from 3% off-highway to >50% off-highway

A typical powertrain consists of a motor (engine), transmission, driveshaft, differential, and axles. Electric vehicles are increasingly using “e-axles” which combine an electric motor, power, and transmission/gearbox into the axle (all as a single component). Combining Dana’s axle/gearbox expertise with Allison’s transmission expertise should allow them to develop a competitive e-axle offering long-term.

What does the Dana acquisition consist of?

For a $2.7bn purchase price, ALSN is getting $2.8bn revenue and $400m EBITDA (based on FY24 results). Margins are lower (14-15%), but capital requirements are also lower (2-3% of sales).

This business is struggling a bit more than standalone ALSN… in 2025, sales are down to $2.48bn (-8.2% from 2024) and EBITDA is down to $349m (-14% from 2024) based on TTM 6/30 results.

The headline purchase price was 6.8x EBITDA before synergies, but it’s closer to 7.7x when using $349m TTM EBITDA. Management is guiding to $120m cost synergies by 2027.

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Pro-forma financials & valuation

Based on 2024 results, this is a combined $6bn revenue and $1.6-1.7bn EBITDA business ($400m from Dana + $1.2bn from ALSN).

ALSN is guiding to ~$1.1bn EBITDA in 2025 and Dana is down to $349m as of 6/30 (it’s likely this will fall a bit further by yearend). Let’s call it $1.45bn EBITDA before synergies.

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As for cash flow, 2025 guidance is $610m FCF at the mid-point ($7.25 per share). Take the $349m acquired EBITDA less $120m incremental interest, $75m capex, and $40m taxes = $115m incremental FCF before working capital ($1.35 per share). Combined pro-forma FCF = $8.60 per share (12.8x P/FCF).

What will management do with this FCF?

Historically, they’ve been a massive share repurchaser. You could categorize this one as a share cannibal. Since coming public in 2012, they’ve repurchased >65% of outstanding shares (from 181m to 83m). Management is hinting they want to continue with buybacks while integrating and delevering the acquisition.

Leverage is increasing to ~2.9-3x while target leverage is closer to 2x. My guess is they’ll hit their target through a combination of cyclical recovery, synergies, and debt paydown via FCF.

Let’s ignore any cyclical recovery and take the $1.45bn starting PF EBITDA and add $120m cost synergies = $1.57bn by 2027. At a 2x leverage target = $3.1bn net debt vs. $4.2bn today; meaning they’ll need to repay $1.1bn by 2027.

Then take the $716m pro-forma FCF and add $120m synergies (taxed at 25%) = $806m by 2027. This works out to $2.2-2.3bn total FCF from 2026-2028. Say half of that goes to debt paydown and half to buybacks. Now FCF is closer to $850m and share count down to 76m or so = $11.20 per share (9.8x P/FCF).

Auto suppliers trade between 9-14x earnings and ALSN historically trades around 10x earnings (likely too cheap for a business like this?). If we use 12-14x earnings on $11.20 per share = $134-157 fair value (i.e. 22-43% upside).

If my estimates are optimistic and ALSN returns to a normal historic multiple, maybe we could see $10/share at 8-9x = $80-90 (18-27% downside).

Summing it up…

Risk/return seems pretty balanced here and ALSN is having a big run lately. It’s going to take time for this acquisition thesis to play out, so it’s not like we’ve missed the boat on this one. I’m planning to add this name to my watchlist and keep an eye on it for a better entry price. I’d be a buyer at closer to $90.

As a reminder to myself, I should take a quick look at the other party to this transaction: Dana (DAN). That business is a ~$3.3bn market cap, just received $2.7bn sale proceeds and announced a $1bn buyback authorization. Granted, those shares are up 80%+ since this deal was announced!

Disclosure: no position, adding to watchlist.

Resources:

• Acquisition of Dana off-highway business (Jun 2025)

• Pro-forma financials 8-K (Nov 2025)

• FY24 10-K

• Scrapped a spin-off in favor of selling SpinCo

• Then SpinCo divisions were sold (closing expected 2H26)

• Then management was ousted and in search of a new CEO

• It’s special sit combo meal: 1) beaten down shares; 2) balance sheet transformation; 3) management change

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:

• 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

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

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Read more

• Shares of KBR are down 26% over the past year

• Upcoming spin-off of their government contractor business in 2H26

• At 12x earnings and 8x EBITDA, the stock trades at a big discount to peers

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:

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

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

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

Subscribe now

Quick Value

KBR, Inc. (KBR)

Ticker: KBR
Price: $45
Shares: 127m
Market cap: $5.7bn
Valuation: 11.8x P/E
Theme: Spin-off

KBR announced in September 2025 they would spin-off their government services business (Mission Technology Solutions) in mid-to-late 2026. They have yet to host a investor days for each company or set a date for the spin so this is an early look.

Background

Pre-split, KBR operates under two segments:

1. Mission Technology Solutions (MTS) — Formerly called “Government Solutions,” this segment is a traditional government contractor (BAH, LDOS, AMTM, etc.). Virtually all revenue comes from U.S., U.K., and Australian governments.

2. Sustainable Technology Solutions (STS) — Combination of IP licensing and consulting services mainly for “green energy” applications. Virtually all revenue comes from commercial customers.

Mission Technology Solutions (MTS) will be SpinCo. This is a traditional government contractor. Peers like Leidos and Booz Allen focus more on IT, data, cybersecurity, intelligence, etc. while the MTS business has a heavy mix of space and logistics revenue (i.e. training astronauts and managing military bases).

MTS had some false starts lately. They lost a large contract (TRANSCOM) in June 2025 for managing relocation logistics for military personnel and another contract for managing European bases as part of the Ukraine conflict.

The former contract was only a few months into launching, so it had minimal impact to earnings and cash flow. But it had $20bn revenue potential over a 9-year term which certainly dampened the multi-year revenue targets (more on that below).

Sustainable Technology Solutions (STS) will be RemainCo. There are two main revenue streams here: consulting services (design, engineering, feasibility studies, etc.) and IP licensing. Margins are 2x the MTS business and this segment is growing at a double digit pace (management guiding to 11-15% CAGR from 2023-2027).

Note: there was some segment realignment in early 2025 which pushed STS closer to the $500m EBITDA level. Supporting schedules go back to 2022 so the 2021 figures below are likely less reliable:

Share

Why it’s interesting…

First, at a surface level, KBR is trading at a significant discount to government contractor peers.

That group trades at 16-17x earnings and 12x EBITDA while KBR sits at 11x and 8x, respectively. That’s a 30%+ discount. In fact, KBR has the industry’s only negative total return over a 3-year period.

But we need more than just a cheap valuation before getting too excited.

Why are shares trading at a discount?

As mentioned earlier, KBR is in the penalty box for some operational mishaps and their “underperforming” MTS business. The TRANSCOM contract loss was a big blow to revenue growth.

Management set 2027 financial targets during their May 2024 investor day presentation. After losing the TRANSCOM contract, those targets were revised lower in July 2025. Revenue was the major reset (from $11.5bn to $9bn) while most other targets were maintained: EBITDA target unchanged at $1.15bn and operating cash flow lowered by $50m to $650m.

MTS has lumpy revenue growth since 2022 and EBITDA is roughly flat during that timeframe. The $13.4bn MTS backlog is starting to show growth (+6% from FY24 to 3Q25 and +16% since a 2022 low), so maybe things are turning a corner here?

At this point, a discount to peers is probably warranted. Also, MTS will be the smallest industry player post-spin (<$6bn revenue compared to $7-17bn for the rest of the group).

What about the STS business?

This is perhaps the “crown jewel” of the portfolio with double digit top-line growth, 20%+ EBITDA margins, and virtually zero capital requirements (STS spent $7m on capex in FY24 vs. $1.9bn revenue = 0.4% capex/sales).

STS is a major player in the global Ammonia industry through design, engineering & technology licensing (~50% market share).

Ammonia demand is growing and at the same time a very emissions-intensive process. New plants will likely need to be built, and many of them will be the “low carbon” variety supported by STS offerings. CF Industries is estimating a 7-8 MMT capacity shortfall to meet demand by 2029.

The STS business also supports energy (upstream, midstream, LNG), refining, petrochemicals, and renewables industries. You can see the ebbs and flows of revenue and profitability (from the 2024 investor day).

An early look at valuation…

For simplicity, I’ll take trailing corporate costs ($110m) and burden each company equally ($55m) plus an extra $10m each for standalone dis-synergies.

Let’s say the SpinCo government business deserves to trade at a discount to the broader contractor group (this is warranted given the mishaps and smaller scale).

• MTS — $573m EBITDA less $65m corporate costs = $508m. At 9x EBITDA = $4.6bn segment value.

Fortunately, there’s a relatively recent transaction which offers a nice comparison for STS. In May 2025, Honeywell acquired the catalyst and process technologies business from Johnson Matthey for £1.8bn at an 11x EBITDA multiple.

• STS — $493m EBITDA less $65m corporate costs = $428m. At 11x EBITDA = $4.7bn segment value.

That’s $4.6bn for MTS and $4.7bn for STS ($9.3bn total) less $2.05bn net debt = $7.25bn equity value or $57 per share (+30% upside) using 127m shares outstanding.

These are trailing results and apply zero credit for future growth or capital allocation.

Remember those 2027 targets?

Management set a 2027 goal of $1.15bn EBITDA before the TRANSCOM contract loss, then they reaffirmed that $1.15bn EBITDA target in July 2025 after the contract loss.

Here’s a look at summarized KBR financials since 2016 and including 2026-2027 sell-side estimates. It paints a picture of consistent growth, margin improvement, and cash generation. Leverage is steady from 2022-2025 and buybacks are increasingly favored since 2022.

You’ll notice 2027 EBITDA estimates ($1.02bn) are well below the $1.15bn EBITDA target.

Let’s say they get to $1.1bn EBITDA by 2027. The stock historically traded at 11-12x EBITDA, but let’s use 10x for an $11bn enterprise value. With no change in net debt ($2.1bn) = $8.9bn equity value or $70 per share (+55% upside).

Hmm…

Summing it up…

Both pieces of this upcoming spin have yet to host an investor day or initiate post-spin guidance, so consider this a “way too early” look at the business.

At the same time, most spins I’m looking at don’t have as clear “upside math” prior to the spin. On the other hand, I’m glossing over some of the risks and challenges here… STS has a history of lumpy revenue and earnings, but they’re seeing momentum recently. And the news around TRANSCOM indicate some serious ops challenges internally.

This one is going on my watchlist for now, but I could absolutely own this ahead of the spin and then adjust my preferences based on initial trading (i.e. if investors punt on MTS in favor of STS).

Disclosure: no position.

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Resources:

• FY2024 10-K

• Spin-off presentation (Sep 2025)

• Investor day presentation (May 2024)

• Revised investor day targets (July 2025)