• Shares of TFC have underperformed peers for 5+ years

• New CEO took over in September 2026 and already pivoting

• Stock is cheap at 10.5x earnings and 1.5x TBV (peers trade at ~2x)

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:

• 10/19/26 — New recommendations in the portfolio ($)

• 10/12/26 — Beaten down CPG stock at Flowers Foods

• 10/10/26 — Net cash + massive cost saving story at Thinkific ($)

• 10/01/26 — Field guide for investing in turnarounds

• 09/28/26 — Gentherm RMT transaction ($)

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Quick Value

Truist Financial (TFC)

I get a daily feed of special situation ideas and on consecutive days I caught news about a new CEO (management change) and a sizable open market purchase (insider buying).

While I don’t normally look at a lot of large cap ideas, this one was intriguing. Here are my notes…

Background

Truist is the 10th largest bank with roughly $550bn in total assets serving mostly southern states (large presence in Florida, Georgia, Virginia, and the Carolinas) with a 1,900+ branch network.

It’s a mostly C&I loan book (51% of their $326bn loan book) with a large consumer portfolio too (36% of loans). Deposits are $413bn at Q3 2026 with 25% from non-interest bearing sources.

Non-interest revenue sources are ~32% of revenue ($5.9bn in FY25) consisting of wealth management ($1.4bn), treasury management ($1.3bn), and investment banking ($1.1bn).

Some history:

• 2019 — BB&T and SunTrust complete $28bn all-stock “merger of equals” and rebranded as Truist Financial. Shares finished the year around $56.

• 2020-2023 — Merger integration period with $2bn+ restructuring charges and a $6bn goodwill impairment in 2023. Rates started climbing during this period and TBV eroded. Shares went from $56 to $37.

• 2024-2025 — Sold their largest source of fee revenue (insurance division) for ~$12bn to shore up the balance sheet. Earnings and TBV recovering. Shares went from $37 to $49.

• 2026 — Earnings recovery continues, modest buybacks, divestitures, and a new CEO taking over as of Sep 2026. Shares flat on the year vs. peers up 10-15% YTD.

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Why it’s interesting…

Truist is an industry laggard both in share price performance and fundamentals, meaning there’s some upside to peer valuations assuming they can close the gap.

Here’s how TFC stacks up against peers over the last 5 years:

On a fundamental basis, TFC trades at a 20%+ discount to peers on a TBV basis (1.5x P/TBV vs. peers at 1.9x).

Much of this underperformance was a result of poor execution (and decision-making?) since the 2019 merger — restructuring costs, impairment charges, poorly positioned securities portfolio at low rates ($8bn losses in held-to-maturity securities), divested large non-interest revenue stream, etc.

So how are they going to close the performance gap?

The company brought in an outsider to figure that out.

Former CEO Bill Rogers (a holdover from the 2019 BB&T/SunTrust merger) retired in September 2026. He was replaced by longtime PNC exec and previous Fiserv CEO, Mike Lyons.

This is a really early management change situation (literally first inning here).

A few things intrigued me about this new CEO…

(1) Incentive package — Lyons was given a huge incentive package worth $60m+ (part of which was a replacement for lost comp in his CEO role at Fiserv). On top of that, he took his $1m “sign-on” bonus and bought $1m worth of TFC shares in the open market at $48.

This was literally the first insider purchase in years…

Governance rules require the CEO to hold 6x his base salary in TFC stock (which can include unvested RSUs, but not PSUs). Lyons is already at $18.4m or 14x his base salary. Seems like good alignment.

(2) Strategic review — After roughly two months on the job, they’ve already divested an auto loan portfolio (RAC) for $5.2bn, repositioned $8.6bn of low-yield securities, and announced a $7.7bn divestiture of their unsecured lending platform, LightStream, to Carlyle.

In total, these asset sales bring in $12.4bn proceeds and free up modest amounts of capital. Maybe it’s a signal that they’re gearing up for more radical changes at the bank?

Hmm…

Share Value Don't Lie

So what’s the plan from here?

In early 2027, management plans to provide “more details on our outlook for the year and our path to becoming a top-performing bank as the investments we're making take shape over time.” So it sounds like we’ll get investor-day-like updates alongside full year results.

A few tidbits were dropped on the 3Q26 earnings call which hint toward the plan:

• Historically, Truist “operated too many nationally focused stand-alone single product businesses” which “diverted attention and resources from growing our core deposit franchise.” (non-core asset sales)

• Focus on fee revenue — commented on building/growing treasury management, wealth, and other service lines.

• “We need to get back to basics, simplify how we work, remove unnecessary complexity and eliminate low priority activities” (improve loan growth)

• “The biggest opportunity I've seen is just be clear on the strategy and then align our capital and resources against it” (improved focus)

On the call, Lyons reiterated a 15% ROTCE target in 2027 and 16-18% over the “long-term.” (US Bank and PNC each run at 18%+ ROTCE).

What could shares be worth?

There are ~1.2bn shares outstanding x $49 = $59bn market cap. Here’s a summary look at fundamentals:

I’m looking at this on a 2-year horizon (into 2028):

• Upside — Assuming they hit the 15% ROTCE target in 2027 and build a reasonable bridge to 16% by 2028. Tangible capital finished 3Q26 at $38bn, 2027 earnings should add $5.7bn and buybacks/dividends likely offset that amount while bringing share count down to ~1.12bn or so. A 16% ROTCE on $38bn = $6.1bn or $5.45 per share by 2028 with $34 per share TBV. At 2x TBV = $68 per share (39% upside), which works out to 12.5x earnings.

• Downside — Tangible capital erodes as they reposition the securities portfolio and invest for growth, leaving little room for buybacks. Shares traded down to 1.2-1.3x TBV in early 2025 = $38 per share (-22% downside) on a lower TBV per share level of $32.

That’s ~1.8x upside/downside and perhaps could be better if there’s a sensible bridge to 17-18% ROTCE. Sell-side estimates have Truist earning $4.93 in 2027 and $5.40 in 2028, but 17-18% returns would likely push earnings closer to $6 per share. This could be a solid self-help earnings growth story in the making.

Summing it up…

Perhaps the biggest “risk” not yet discussed is the questionable Fiserv tenure from Mike Lyons. He was there only a short period (~18 months) and the stock performance was horrendous (-75%). Maybe that job was too far afield from his banking career?

Aside from that, TFC is cheap relative to peers and has an interesting management change aspect to it. That’s the likely catalyst to close the gap.

If successful, you can probably pencil out a 20%+ IRR over the next 2-3 years.

It’s not a screaming bargain, but it’s a reasonable story in large cap land.

Disclosure: no position.

Resources:

• FY2025 10-K

• 3Q26 earnings release

• 3Q26 earnings presentation

• Some charts + commentary on my positioning

• Handful of (new) ideas I’m buying today

• What’s on deck right now

Stocks are looking cheap these days and it’s been a while since my last “update” write-ups:

• My 4 favorite event-driven ideas (May 2026)

• Portfolio changes (Feb 2026)

• Quick ideas list (Nov 2025)

Here’s the track record on those recommendations since November 2025:

Today, I’m adding a few ideas to the recommended list…

Here’s how the rest of this post will work:

1. Names I’ve recently added to the VDL Recommendation Tracker (and purchased in my own portfolio)

2. A few names that I’m close to buying (my “on deck” list)

In Part II, I’ll share a post-mortem on recently closed recommendations and suggest a few ideas already in the portfolio that look attractive at today’s prices.

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Commentary

It may not feel like it with the S&P 500 closing in on all-time highs, but there are some seriously cheap stocks out there right now.

Four things make me feel like it’s a good time to be adding or buying today:

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• Shares down 80% from 2022 highs

• Recently cut dividend by 50% leaving room for deleveraging

• FLO trades at 7.5x earning and 6.4x EBITDA with 3.6x leverage

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

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

Recent write-ups include:

• 10/10/26 — Net cash + massive cost saving story at Thinkific ($)

• 10/01/26 — Field guide for investing in turnarounds

• 09/28/26 — Gentherm RMT transaction ($)

• 09/21/26 — A look at the Corteva / Vylor spin-off

• 09/15/26 — Guide to investing in M&A situations ($)

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Quick Value

Flowers Foods (FLO)

I’m continuing on my path of reviewing beaten down staples:

• Cal-Maine Foods (CALM) in August 2026

• Campbell’s (CPB) in June 2026

• Magnum Ice Cream (MICC) in May 2026

• Nomad Foods (NOMD) in April 2026

And since I’m a glutton for punishment when it comes to idea generation, I figured: “why not look at the most beaten down name in the group this year?”

Background

Flowers Foods (FLO) is the “second-largest producer and marketer of packaged bakery foods in the United States” with well-known brands like: Nature’s Own (#1 loaf brand), Dave’s Killer Bread (~74% share of organic bread), Canyon Bakehouse (~38% share of gluten-free), Wonder, Tastykake, and Simple Mills.

Fresh baked goods is a mature $32bn category with flat retail sales over the past 3 years. Branded products have 73.8% market share as of FY25, but this has been trending down since a FY21 peak at 77%.

It looks like another staples category facing volume declines due to changing consumer preferences and GLP-1 headwinds; as a result, they’ve been reliant on pricing to maintain sales levels.

The runaway price hikes opened the door to private label competition. Branded share peaked at 77% in FY21 and fell to 73.8% in FY25. Makes sense when a store brand loaf costs $2.66 versus $3.76 for Nature’s Own and $6.20 for DKB, so stretched consumers are trading down.

Flowers corporate history:

• 2011-2013 — Spent $900m to acquire Tastykake, Lepage Bakeries, and assets from the Hostess bankruptcy (including the Wonder brand). Sales went from $2.6bn to $3.7bn as they gained scale.

• 2014-2018 — Acquired Dave’s Killer Bread for $275m, Alpine Valley Bread for $120m, and Canyon Bakehouse (gluten free) for $200m. Sales flattish from $3.75bn to $3.95bn.

• 2019-2020 — Ryals McMullian becomes CEO in 2019. Hosted first investor day in 2020 establishing long-term targets of 1–2% sales, 4–6% EBITDA, 7–9% EPS growth.

• 2021-2024 — Acquired Papa Pita for $275m in 2023. Sales grew from $4.4bn in 2020 to $5.1bn in 2024 (mostly price increases).

• 2025 — Acquired Simple Mills for $795m (3.3x revenue multiple), leverage jumps to 3.3x, several guidance cuts throughout the year. Shares fell from a peak of ~$30 in 2022 to $20.

• 2026 — Announced “operational review” in Feb resulting in cost saving program and 50% dividend cut. Missed Q2 results and cut guidance in Aug. Shares down 45% YTD from $11 to $6.

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This seems like an OK business and probably better positioned than other CPG categories. It’s a profitable product line for retailers and 98% of households are buying bread. The direct-store-delivery (DSD) network of independent distributors has some scale advantages too. But it’s not a volume-growth category.

Why it’s interesting…

Flowers falls into the “beaten down” category with a share price down 54% over the past year and 78% over the past 5 years.

From the earlier timeline, a few events make this stock hard to own for most investors: (1) the 2025 acquisition of Simple Mills pushed leverage to 3.3x; (2) the 50% dividend cut in May 2026; and (3) the downward trend of fundamentals.

Toss in questionable industry dynamics (GLP-1, price inflation, private label competition, etc.), and you get a downright hated stock.

So those are the reasons to pass.

Before looking at the bright spots, let’s start with a view of the fundamentals:

Takeaways:

• This company was built on the back of substantial M&A over a decade-plus (I count ~$2.6bn total M&A spend since 2011 vs. a $2.9bn enterprise value today)

• Aside from acquisitions, nearly all cash flow went to increasing dividends (some capital was spent on buybacks over the years, but there hasn’t been a reduction in share count)

• Revenue growth came in spurts (M&A) while EBITDA, EPS, and margins have stalled since ~2020

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So what’s to like here?

There are 3 main reasons to get excited:

1. Shares are really cheap, even on a recently lowered outlook

2. The dividend cut is already in place

3. The company is shopping their Tastykake brand which would help with leverage

(1) FLO is one of the cheapest CPG stocks despite having less exposure to salty and sweet snacks. At $6, I’m getting a stock trading at 7.5x earnings, 6.3x EBITDA, and 6.4x FCF based on reduced 2026 guidance.

At the mid-point, 2026 guidance assumes 3% sales decline, 13% EBITDA decline, and a 27% EPS decline compared to 2025.

(2) In May 2026, the dividend was lowered by 50%. In theory, this should take some downside out of the equation; but in this case, I think there’s potential for another dividend cut down the road.

At $0.80 per share, EPS is basically down 40% from two years ago ($1.28), so a 50% dividend cut essentially moves them back to a previous payout ratio.

A $0.125 per share quarterly dividend works out to $107m per year ($0.50/share), which is right around 50% of annual FCF and a 60% payout ratio on EPS. Even after the cut, the market seems skeptical with shares trading at an 8.6% yield.

The new payout ratio leaves only a nominal amount of money to delever, call it $100m per year. Without any help from increased earnings, it would take Flowers about 5 years to get to 2.5x leverage (from 3.6x today).

Which brings me to potential divestitures…

(3) In August 2026, the company was rumored to be shopping their Tastykake brand and had hired an investment bank to run a process. Reuters estimated a potential $350m valuation for that business on $400m annual revenue.

This is where I feel most CPG companies could benefit… Redefine “core” brands and sell off non-core assets to both increase focus and reduce debt.

Flowers already has a leading bread business, organic business, and gluten-free business. Selling their cakes and sweets assets makes a ton of sense, especially considering the GLP-1 exposure in that category.

Outlook and valuation…

As much as I’d love to take 2026 guidance at face value, the Q2 earnings call was littered with headwind commentary around input costs, commodity prices, and the company’s inability to take further pricing.

Without increasing demand, it looks like 2027 is going to be a tough year and sell-side estimates reflect that (6% EBITDA decline and 11% EPS decline).

And here’s how volume is currently trending…

It’s not great.

So here’s how I’m thinking valuation:

There are 214m shares outstanding at $6 = $1.28bn market cap. Net debt is $1.64bn as of Q2 for a $2.92bn enterprise value.

Peers are fighting all sorts of varying battles with debt, high dividend payouts, and category declines. Most stocks are trading between 9-12x earnings and 7-9x EBITDA:

• Upside:

  • Let’s assume they sell Tastykake at $350m gross or $300m net. That business has an estimated $400m revenue. At similar margins to consolidated Flowers, it would be $40m EBITDA for a 8.75x sale price.

  • Then add 6 quarters of excess FCF after the dividend, call it $150m. These work out to $450m of debt repayment by the end of 2027 bringing debt down to $1.19bn.

  • At 7.5x EBITDA of $400m ($460m less $40m Tastykake less $20m 2027 headwinds) = $3bn EV. Less $1.19bn net debt = $1.81bn market value. On 214m shares outstanding, that works out to $8.50 per share or 42% upside.

• Downside — EBITDA falls to $430m in 2027 (6% decline) and the multiple compresses to 5.5x = $2.37bn EV. Less ~$1.55bn net debt = $815m equity value or $3.80 per share (-37% downside).

It’s a balanced 1.1x upside/downside ratio and you’re likely noticing a lot of assumptions going into the upside case. I’m ignoring the $0.50 annual dividend which adds some “protection” at an 8.6% yield.

Share Value Don't Lie

Summing it up…

FLO looks like a classic “falling knife” beaten down stock.

It’s incredibly cheap (again, even after the guidance cut) and throws off a ton of cash flow. But they’re facing serious headwinds going into 2027 and even with the lower dividend, there’s not a ton of room to delever.

Bread isn’t a volume-growth category that’s suddenly going to bail out revenue growth either.

What I’m doing with this one — I’m adding this to an already-lengthy list of CPG stocks I’m tracking. I could get more excited if: (1) they announce a sale of Tastykake with plans to reduce debt; (2) they announce a further dividend cut; or (3) volume declines ease up or 2027 guidance holds flat to 2026. If none of those show up by the Q4 earnings release (around February 2027), I’d pass.

Disclosure: no position in FLO.

Resources:

• FLO FY25 10-K

• Investor presentation

Thanks for your support! 🫡

Today’s idea:

• IPO’d in 2021 at a ~C$1bn valuation — now a ~C$140m microcap with more than half the market cap in net cash

• Announced $19m cost saving plan (20% of market cap) expected to yield 25% FCF margins by FY2027

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:

• 10/01/26 — Field guide for investing in turnarounds

• 09/28/26 — Gentherm RMT transaction ($)

• 09/21/26 — A look at the Corteva / Vylor spin-off

• 09/15/26 — Guide to investing in M&A situations ($)

• 09/09/26 — Deckers Outdoor busted GARP story

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Quick Value

Thinkific Labs Inc (THNC.TO)

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• Management just left (or more likely fired)

• Revenue, margins, and earnings are falling badly

• The share price is down 30-40% over the past year

• You can’t even reliably value the business since earnings went negative

Before taking a quick pass, it might be worth seeing if there’s a viable turnaround story developing…

What’s a turnaround?

In One Up On Wall Street, Peter Lynch said about turnarounds: “These aren’t cyclicals that rebound; these are potential fatalities.”

Bankruptcy is the extreme case, but I’d describe them more as:

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While there’s no universal definition for a turnaround, here are some things I look for to qualify these setups:

• Revenue, margins, cash flow and/or earnings are usually declining (or turning from profitable to unprofitable)

• The balance sheet is worsening and leverage is ticking higher (usually a combination of lower earnings and/or lack of cash flow)

• An acquisition, roll-up attempt, rapid expansion, market/product pivot, etc. is blowing up

• Management team or board members are turning over rapidly

• There is an identifiable/controllable path from today’s bad economics back to acceptable performance

The last point might be the only one that matters.

It’s easy to find companies where the fundamentals suck, but if you’re expecting a turn, then you want to see management closing 100 stores, shedding $50m in overhead, and paying down $200m in debt. The thesis can’t be: “demand for Yellow Pages should bounce back next year.”

So a turnaround = actually fixable (i.e. within management’s control) versus a macro/cyclical/secular issue.

Some rules for turnaround investing…

1. It can pay to wait — As Peter Lynch described in OUOWS, sometimes it’s better to wait for the “turn” to materialize than try to catch it too early. Yes, you might be giving up some upside (perhaps significant upside) but you’re reducing the chance of a total blowup.

2. The non-fundamental stuff matters a lot — Is management buying shares on the open market? Does the operational plan make sense? Are there activists or other shareholders involved? Is management taking the situation seriously enough and willing to make hard and fast decisions?

3. Watch for leases (and other fixed costs) — High fixed cost business models are much harder to fix quickly. With retailers, watch for the lease schedule. When a company is locked into leases for multiple years and the business is losing money, then you probably have an unfixable problem on your hands. GameStop is one of the best examples I’ve ever seen of a favorable lease situation. They had 40 to 50% of their leases up for renewal each year over a 5 to 8 year stretch which allowed them to walk away from unprofitable stores fast.

4. Does the plan make sense — Make sure the company has a sensible turnaround plan (or any plan at all!). Hoping for a turn on a single new product launch or rebounding demand isn’t something you want to hang your hat on. Look for self-help operational tactics like store/plant closures, headcount reductions, walking away from unprofitable business, SKU rationalization, etc. (more on this later).

5. Make sure the business/situation is fixable — If you’re dealing with a structural or secular issue, or a (very) deep pile of debt, then you might be waiting for a turn that never comes. The Yellow Pages does not qualify as a turnaround.

6. Runway matters — Next to a fixable situation, flexibility and time to execute are paramount. It’s really tough to fix a horrendous balance sheet. As I’m writing this, Leslie’s (pool supplies retailer) is filing for bankruptcy with ~$750m debt and an estimated $30m EBITDA. There’s almost no room to maneuver in that situation.

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Where to find turnarounds…

Think of running a stock screen for the inverse of “good” financial performance.

Here’s a basic screen that should turn up some distressed companies:

• Start with your desired universe (I used the Russell 3000 all-cap index)

• 3 years of positive net income (your choice on adjusted vs. non-adjusted)

• 2 quarters of net losses

Running this screen today (late September 2026) produced 25 decent turnaround candidates like Whirlpool, Alaska Air, Vital Farms, etc. whose shares are collectively down 30-70% over the past year. (It also turned up a turnaround idea I currently own!)

Alternatively, you could mix in:

• Gross margins, operating margins, or net margins falling by 200-500bps compared to recent 3-year averages

• A major valuation re-rating compared to 3-5 year history (i.e. a stock moving from 20x earnings to 10x earnings or less)

• Revenue moving from consistently growing to consistently shrinking

More often, I’m building my top of funnel from the beaten down category like 52 week lows or share prices that are declining 10 to 30% on a single event

Qualitative news flow can be helpful here too: headcount reductions of 10% or more, headlines about plant or store closures, etc.

Other signs a company might be on the cusp of a turn could be when an activist gets involved or if management starts buying shares in the open market. Those are probably your best tell tale signs that results could be turning the corner.

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Case studies

The root of almost all turnaround execution is simplification or “getting back to the core.” Here are some tactical items with examples to watch for:

(1) Shedding unprofitable customers

From 2014-2016, Quest Resource Holdings (QRHC) was consistently doing $14m gross profit on $170-180m annual revenue (8% gross margins).

Growth was stalling and earnings compressing. Quest brought in a new CEO early 2016 who found that several customer contracts were losing money for the company. His first move was to walk away from a quarter of annual revenue in 2017. Then another quarter in 2018, and another 5% in 2019. So peak-to-trough revenue was down almost 50% from 2016-2019.

But look what happened to gross margins & profit:

Margins steadily grew and the company repositioned itself to profitably absorb an acquisition in 2021. Shares went from $1.40 at the end of 2018 to nearly $7 by 2021 (a 5-bagger).

(2) Closing unprofitable locations

This one is critical for struggling retailers.

Look at the table below showing lease expirations for GameStop (GME) and Circuit City stores during their respective turnaround periods:

GameStop went from 7,500 locations in FY2017 to 2,200 by FY2026 (a 70% reduction) because they had tons of stores up for renewal every year. Circuit City had mounting losses, but zero store flexibility with only 10% of their locations up for renewal over the next 5-year period!

There are trade-offs in having short-term leases (it’s usually more expensive from a rent standpoint) but the flexibility is invaluable during a turnaround. Be sure to check the Properties section of the 10-K.

Build-A-Bear (BBW) was another great example moving from a $50m loss in 2012 to $27m net income in 2015 with virtually zero change in revenue. Shares jumped from $4 to $20 (a 5-bagger).

(3) Simplification

Watch for companies selling underperforming brands, reducing their SKU count / product portfolio, or getting out of business lines entirely. These tactics are designed to refocus companies on what they do best (or where they make the most money).

Former media exec Ynon Kreiz stepped into the CEO role at toymaker Mattel in 2018 at a time when the company was losing money, had barely positive EBITDA, and leverage was pushing 25x.

His plan involved $650m of cost savings (including reducing their non-manufacturing headcount by 33%), but it also involved reducing SKU count by 30% and exiting 5 owned & operated plants. The goal was to focus on “power brands” like Barbie, Hot Wheels, and Fisher-Price.

Here were the results a few years later:

This is objectively stellar financial performance for a turnaround.

COVID happened in the midst of this turn and likely affected share price performance. The stock went from ~$14 at the time Ynon started in 2018 to around $26 in mid-2022 (+85%).

Plenty of others have gone through a successful “simplification” effort — GE under Larry Culp ended with a 3-way spin-off and P&G which reduced brands from 100 to 65 including a sale of Duracell to Berkshire and some beauty brands sold to Coty (P&G operating margins went from ~18% to ~24% during the 2014-2018 period).

Share Value Don't Lie

(4) Cutting overhead and headcount

3G Capital, with their “zero based budgeting” approach, are probably the poster child for intensive overhead management. At Kraft Heinz they cut overhead from $2.9bn in 2016 to $2.1bn in 2017 and Burger King went from $500m to $238m in 2010.

Before the iPhone took the world by storm, BlackBerry (BB) was cranking out cell phones at a massive profit (you already know what happened once Apple released the iPhone).

So in 2013, the company announced a massive 40% headcount reduction, I don’t think I’ve ever seen one as large as this, and other cost cutting measures.

A few years later, they reduced the workforce by more than 80%, but operating income still wasn’t sustainably positive.

There weren’t enough stable or growing revenue streams to get them back to sustainability. Shares have been flat for 10+ years now.

You’ll run across plenty of press releases highlighting 10-20% headcount reductions or restructuring plans cutting $XXXm annually.

Weight these against the current overhead (or SG&A) costs of the business, and against the current market cap. A $500m restructuring plan on a $2.5bn market cap is meaningful savings!

(5) Cutting the dividend

You know you have a management team willing to make hard choices when they eliminate sacred cows.

Dividends become a huge cash flow constraint in a turnaround situation. What little cash flow you have available to reinvest or dig yourself out of a hole is now getting soaked up by the dividend payment.

I’m going to ignore macro or industry-driven dividend cuts like Bank of America’s cut to 1 cent in 2009 or the automakers cutting in 2006-2008 leading up to the GFC.

Following COVID, the mattress industry was in shambles and Leggett & Platt manufactured components for mattress production. Earnings fell from over $2.50 per share to $1, and the dividend payment was consuming every penny by 2023.

Leverage was pushing 4x and there was no room to repay debt with all of earnings going to a big dividend payout.

So in April 2024, they cut the dividend almost 90% and found a path to start delevering.

This turnaround plan was arguably cut short as the company was acquired in mid-2026 by mattress retailer Somnigroup, just as results were stabilizing.

For a dividend cut to work, you need other specific fixes in play… significant deleveraging, stabilizing business, divesting assets, etc. Again, the best turnarounds are within management’s control, eliminating a dividend is just another lever to pull.

(6) Selling assets

Sometimes there’s enough cash flow from divestitures (big or small) to fuel the entire turnaround plan. These could come from real estate, equipment, or entire business units.

Supervalu is a great example here.

In 2012, Supervalu was trading around $15, staring at 4 years of declining revenue and earnings, and mounting debts. Supervalu ran a wholesale food distributor serving grocery stores and they owned about a dozen grocery store brands across 2,400 locations.

In 2013, under their new “turnaround CEO,” Supervalu announced a $3.3bn sale of several grocery chain brands which cut their debt in half. The remaining businesses had stable revenue and earnings improved almost overnight.

The divestiture announcement was the catalyst to get involved here (and that’s where my predecessor firm bought shares), and at a split-adjusted $21 you would have had a 3-bagger by the time shares peaked around $70 in 2015.

(7) Operating leverage

This is more something-to-watch than a tactical turnaround lever.

A combination of high fixed costs and declining revenue creates increased pressure on profitability (and the inverse is true when revenue is growing).

Here’s a look at revenue and SG&A by year for United Parks & Resorts (PRKS) which operates SeaWorld and Busch Gardens:

There’s almost zero variability in overhead every year which means revenue swings will have an outsized impact on profitability.

As for turnarounds, it’s much harder to walk away from fixed costs quickly. So asset sales or revenue stabilization become much more important.

Turnarounds I’m watching…

• Portillo’s (PTLO, $4) — Shares are down 90% over the last 5 years as they rapidly expanded store count. These are high fixed cost locations compared to traditional fast-casual restaurants. Revenue is growing as new locations open, but weak same store sales are driving earnings lower. A new CEO joined early 2026, but the turnaround plan is early. His plan is to slow new openings and improve marketing/awareness in recently opened geographies. Shares are trading at 0.65x EV/sales for a business that was producing 15-18% EBITDA margins in 2019-2020.

• Baxter (BAX, $24) — Baxter is a healthcare conglomerate ranging from hospital supplies to infusion pumps. An external CEO (management change) was hired in July 2026 following a few years of large divestitures to repay debt and a big dividend cut. His first priority is tackling the debt (goal = 3x leverage by yearend 2026), then simplifying operations (wouldn’t be surprised to see more divestiture announcements). Baxter even hired a CFO explicitly for his turnaround experience. This turnaround is still early innings and shares are trading at 11x earnings / 9x EBITDA.

• Six Flags (FUN, $11) — After merging with Cedar Fair in 2024, sales have been weak (this is another high fixed cost theme park operator), and leverage is high (~4x). It’s now turning into quite the special situation as they’ve sold some underperforming properties to refocus and an activist (JANA Partners) with a 4% stake is pushing for a sale of the company. The stock is trading around 8x EBITDA but FCF is minimal.

• Monro (MNRO, $14) — I wrote about this one in August 2026. The short story: company fired prior CEO for poor performance, hired a restructuring consultant to fix the business (eventually became permanent CEO), closing underperforming locations, selling real estate, Carl Icahn owns ~17% of shares, and the board recently announced a formal strategic review.

• Nike (NKE, $36) — This will become a business school case study someday. Shares are down from $150+ in 2021 to $36 in September 2026. The dividend yield is pushing 5% and total dividend payments now outpace FCF (perhaps a dividend cut is in store?). A new CEO is refocusing the company on its sports heritage and fortunately the balance sheet is excellent. Worth watching if only because it’s so high profile.

• Thinkific (THNC.TO, $2) — A few days ago, Thinkific announced what looks like a major restructuring announcement including a 96-person headcount reduction (roughly one third of their workforce). Half the market cap sits in net cash and the company expects this restructuring effort to bring FCF margins to 25% which would imply a very cheap stock price.

I’m only scratching the surface on turnarounds here…

Generally speaking, focus on finding fixable situations. Runway (liquidity) might be the most important variable in getting a sustainably “fixed” state. And you’ll need a management team willing to move fast and change things up.

Happy hunting!

Colin

Disclosure: I own shares of MNRO and may buy or sell any securities mentioned in this post at any time. DYODD.

P.S. leave a comment and share a turnaround idea I should look at

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• Gentherm shares down ~60% over the last 5 years

• RMT transaction closes Oct 1, combining Gentherm’s light auto business with a mostly commercial & off-highway business from Modine

• Post-close shares trade at 7.4x EBITA (before synergies) with <1x leverage and a $400m buyback authorization (20% of market cap)

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

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

Recent write-ups include:

• 09/21/26 — A look at the Corteva / Vylor spin-off

• 09/15/26 — Guide to investing in M&A situations ($)

• 09/09/26 — Deckers Outdoor busted GARP story

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

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

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Quick Value

Gentherm (THRM)

Last week, I looked at the Corteva/Vylor spin-off which is set to begin trading on October 1st. Another “spin” is scheduled to start trading that same day…

Technically, this is a Reverse Morris Trust (RMT) transaction where Modine is spinning off a division and simultaneously merging it with publicly traded Gentherm (THRM). So it’s part M&A, part spin-off.

Here are my notes…

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• Investor day presentations held, spin-off scheduled for Oct 1 trading

• Vylor (spin) GoodCo with 30% EBITDA margin target & solid growth

• New Corteva crop protection business akin to specialty chemicals

• Could be compelling if SpinCo trades at a (deserved) premium

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

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

Recent write-ups include:

• 09/15/26 — Guide to investing in M&A situations ($)

• 09/09/26 — Deckers Outdoor busted GARP story

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

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

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

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Quick Value

Corteva (CTVA) & Vylor (VYLR)

There are a few imminent spin-offs coming over the next few weeks and Corteva / Vylor just held their respective investor day presentations and multi-year outlooks.

I’ll preface this one by saying Corteva is quite a bit more expensive than my “usual suspect” at 13-14x EBITDA, but there’s a tiny bit of GoodCo/BadCo in here which could make it interesting.

Here are my notes and valuation estimates for each piece…

Background

DuPont acquired the Pioneer seed brand in 1999 and operated it until 2017 when they merged with Dow to become “DowDuPont.”

DowDuPont combined their various divisions into 3 businesses, and then split them up into separate public companies with the agriscience business becoming Corteva in 2019.

Here’s what Corteva looked like at the time of the 2019 spin compared to peers:

After the spin, Corteva grew revenue from $14bn to $18bn (~4% CAGR) and EPS from $1.50 to $3.70 (2026 mid-point guide). Most of the earnings growth came from a long tail of DowDuPont merger synergies. Since the spin, shares are up 2.8x. Not bad.

Management is ready for the next chapter, and on October 1, 2026, Corteva will complete a spin-off of their seed business Vylor (VYLR), leaving Corteva RemainCo with the crop protection business.

On the surface, you’ll have:

1. Seed (Vylor / SpinCo) — Develops seeds for maximizing farmer crop yields. They own the #1 corn and soybean brand (Pioneer). This business is seen as the “GoodCo” with an economic model resembling a high-margin royalty or licensing business.

2. Crop Protection (Corteva / RemainCo) — Basically a specialty chemical business with products to protect crops against weeds, insects, diseases, etc. Margins and cash flow are good, but the business behaves somewhat like a pharmaceutical with a need to develop new products and combat generic competition.

Share

Pre-Spin Fundamentals

On a pre-spin basis, Corteva has 668m shares outstanding x $80 = $54bn market cap. Net debt is $2.5bn as of June 2026, but cash generation is highly seasonal at the seed business.

Some takeaways:

• Margin expansion was a significant driver for earnings and EPS growth

• Balance sheet historically runs a net cash position at yearend with peak net debt coming in Q2/Q3 each year

• Capital allocation strongly favors buybacks with share count down 11% since the 2019 spin (~1.7% reduction per year)

• There is some “beneath the surface” activity we’ll see in a moment

Pre-spin, the median valuation is 20x earnings and ~12x EBITDA:

Share Value Don't Lie

RemainCo (Corteva)

I. Background

Crop protection is a $70bn industry and acts as maintenance spend for farmers to protect their crops from weeds and pests which reduce their yields.

It’s a highly concentrated industry with the top 4 players (Bayer/Monsanto, Corteva, Syngenta, BASF) at 50%+ of the total market.

Think of crop protection as specialty chemical products developed through R&D and sold mainly through distributors or retailers. It’s a nice re-occurring revenue stream business model.

The challenge with this business model (and why it’s likely to trade at a discount to SpinCo) is the pharma-like nature of the industry where competitors are constantly developing and launching new products while older products face generic competition.

Corteva refers to this as differentiated versus non-differentiated product sales. Currently, they get 65% of revenue from differentiated sources and 35% from non-differentiated sources. Management has made this a priority over the past few years to walk away from non-differentiated revenue streams.

II. Outlook

First, a look at crop protection segment financials and the 2026 & 2029 outlook:

From 2027-2029, the “value creation algorithm“ includes:

• 3% revenue CAGR from $7.8bn in 2026 to $8.4-8.7bn by 2029

• 6% EBITDA CAGR (2x revenue CAGR) = $1.45-1.65bn by 2029

• High-teens EBITDA margins (150bps improvement at mid-point)

• $2.4bn cumulative operating cash flow from 2027-2029 ($1.2-1.4bn cumulative FCF)

How will they get there?

At the September 2026 investor day, Corteva outlined a product pipeline with $11bn of peak revenue over the next decade. These launches will be the key contributor to their targeted 3% revenue CAGR over the next few years.

From the 2026-2029 EBITDA bridge, you can see the base business erosion consumes most of new product launch profits, so there’s risk that new products fall short of expectations. (Granted, this management team is generally hitting their targets since the 2019 spinoff.)

Last, management commentary around pricing is a tad concerning: “sustained pricing headwinds” since 2023, wiped out all pricing gains achieved during COVID years, competitors are further reducing prices.

This is a stock trading at 13-14x EBITDA pre-split. Generic drug makers like Viatris (formerly Mylan) and Teva were also trading at 10-14x EBITDA from 2014-2017 right before a lengthy period of “sustained pricing headwinds” which sent those stocks to 4-5x earnings!

III. Valuation

There are no pure play seed or crop protection businesses anymore; as the industry consolidated, they’ve all merged or combined into agriculture or chemical conglomerates.

Most specialty chemical companies with high-teens margins or better trade at 10-14x EBITDA and pre-spin Corteva was trading at a median 11.7x EBITDA.

At 10x and 11.7x 2026 EBITDA of $1.3bn = $13-15bn EV. Management guided to a $500m net cash position by yearend 2026 (slide 63) and I’ll assume no change in share count (668m) = $20-24 per share for RemainCo.

Long-term, let’s say they achieve their mid-point EBITDA guide at $1.55bn and get the share count down to 620m via buybacks. Assuming no change in net debt, I get $30 per share by 2029.

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SpinCo (Vylor)

I. Background

Traditional row crop seeds are a $60bn industry.

Again, this is a highly concentrated industry with the same top 4 players at 50%+ of the market. It’s likely more concentrated than that headline as well depending on the crop + geography combo (Corteva and Monsanto are basically a duopoly in corn).

Seeds are a higher margin and stickier business model because these products are the key driver to increased crop yields for farmers with very high switching costs. And since farmers can’t magically create new land, they need to find ways to increase the output of what they’re planting.

II. Outlook

Here’s a look at seed segment financials and the 2026 & 2029 outlook:

From 2027-2029, the “value creation algorithm“ at SpinCo includes:

• Sales growth of 3-4% annually to $11.2-11.9bn by 2029

• EBITDA growth of 7-8% annually to $3.3-3.7bn by 2029

• Cumulative FCF of $5.5-6.5bn (targeting 60% FCF/EBITDA conversion)

• Intend to return at least $1bn per year via buybacks ($3bn minimum)

• R&D at 10% of sales

Perhaps the most compelling piece of SpinCo is the margin expansion story. From mid-20% EBITDA margins in 2025 to 30%+ by 2029 (and likely higher into the 2030’s).

Most of this margin expansion comes from the company’s licensing situation. Vylor was historically paying licensing fees of $700m per year for in-licensed seed traits. That spend will flip to out-licensing to other independent seed companies into the 2030’s:

These are relatively small numbers ($1bn net licensing income vs. $11bn total revenue), but it’s very high-margin recurring revenue.

III. Valuation

Both Monsanto and Syngenta were acquired around 16x EBITDA in 2017-2018.

If you lump Vylor into the same bucket of “trophy asset” and call it 14-16x EBITDA at $2.8bn 2026 EBITDA = $39-45bn enterprise value. Because of their highly seasonal cash generation, Vylor likely finishes the year close to zero net debt. Call it $58-67 per share based on 2026 guidance.

Long-term, at $3.3-3.7bn EBITDA and a similar 14-16x multiple = $46-59bn EV. Assume no change in debt and they’ve repurchased $5bn worth of stock (I’ll use 600m shares instead of 668m) = $77-98 per share by 2029.

Summing it up…

If I add these pieces together, I get:

That works out to $78-91 per share vs. $80 today which isn’t compelling; though $107-128 by 2029 works out to a 10-17% IRR.

Where this potentially gets interesting is if SpinCo (GoodCo) comes out at a premium valuation leaving RemainCo at a cheap entry point.

Let’s say SpinCo trades at $63 per share and I get RemainCo for $17. Based on the $1.3bn EBITDA guide, that means I’m getting shares at 8.4x EBITDA which is fairly cheap for a specialty chemical business.

Shareholders will get 1 share of VYLR for every share of CTVA they own with when-issued trading starting on Sep 25, 2026 and regular way trading starting on Oct 1, 2026.

Let’s see how things play out…

Disclosure: no position in CTVA or VYLR

Resources:

• VYLR Form 10

• CTVA pre-spin FY25 10-K

• RemainCo investor day presentation

• SpinCo investor day presentation

I found this universe way too narrow and came up with 15 themes I’m regularly looking at. I’ve already written about 10 of them (linked below), and today I’m covering #11.

Past investment theme guides:

• 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) ($)

• Part 9 — asset plays (balance sheet investing ($)

• Part 10 — goodco/badco investing (feeder for activists & other catalysts) ($)

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Mergers & Acquisitions (M&A)

In aggregate, acquisitions are known to destroy more shareholder value than create it.1

Fortunately, there’s a wide variety of M&A niches out there, many of which offer good returns. Here are 7 types of M&A investments I’m regularly looking at:

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

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

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

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

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

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

Recent write-ups include:

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

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

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

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

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

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Quick Value

Deckers Outdoor Corp (DECK)

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

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

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

Background

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

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

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

Notable footwear companies include:

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

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

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

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

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

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

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

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

Why it’s interesting…

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

First, a look at the fundamentals…

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

A few takeaways:

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

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

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

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

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

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

A few items are contributing to the decline:

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

   

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

   

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

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

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

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

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

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

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

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

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

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

So what’s the outlook from here?

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

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

  • HOKA = low-double-digit growth

  • UGG = mid-single-digit growth

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

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

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

Here’s some math on potential FY28 earnings…

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

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

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

• Taxed at 23% = $1.1bn net income

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

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

Hmm…

Share

Alright, so what are shares worth?

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

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

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

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

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

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

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

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

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

Here are my rough valuation estimates:

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

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

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

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

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

Summing it up…

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

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

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

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

Disclosure: no position in DECK

Resources:

• DECK FY26 10-K

• DECK Q1 FY27 10-Q and earnings release

• Skechers FY24 10-K

• Skechers merger proxy

• Operates one of the best business models on the planet

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

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

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

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

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

Recent write-ups include:

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

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

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

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

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

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

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

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

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

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

Recent write-ups include:

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

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

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

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

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

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Quick Value

Cal-Maine Foods Inc (CALM)

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

Here are my notes…

Background

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

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

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

Quick overview of the egg industry

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

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

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

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

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

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

It’s also a capital-intensive business:

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

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

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

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

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

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

Why it’s interesting…

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

Here’s what I like about this one…

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1) Dominant player in cyclical industry

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

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

2) Balance sheet is rock solid

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

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

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

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

3) Consistent book value growth & valuation

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

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

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

Is a 2.1x P/B multiple justified?

I sure think so…

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

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

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

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

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4) Capital allocation & cash flow

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

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

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

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

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

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

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

5) Cycle timing

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

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

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

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

So what could shares be worth?

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

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

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

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

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

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

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

Summing it up…

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

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

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

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

Resources:

• Jan 2026 investor presentation

• Q4 FY26 earnings presentation

• 2025 Echo Lake acquisition slides

• FY26 10-K

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

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

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

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

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

Recent write-ups include:

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

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

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

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

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

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

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

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

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

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

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

Recent write-ups include:

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

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

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

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

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

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Quick Value

Shift4 Payments Inc (FOUR)

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

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

Background

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

Some history:

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

• 2012 — Rebranded as Harbourtouch

• 2017 — Acquired Shift4 Corporation and rebranded under that name

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

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

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

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

A (very) brief primer on payment processing

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

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

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

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

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

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

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

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

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

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

Back to Shift4…

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

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

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

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

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

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Why it’s interesting…

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

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

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

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

So what’s the catch?

Three things catch my eye here:

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

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

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

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

So where are the bright spots?

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

1) Niche business

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

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

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

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

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

Customer acquisition via M&A:

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

Market leader in “complex card present” situations:

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

Quality of customer base:

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

Global Blue acquisition…

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

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

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

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

2) Financial profile

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

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

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

Then, there’s the medium-term targets:

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

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

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3) Valuation

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

2026 mid-point guide calls for:

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

• $1.17bn EBITDA or ~20.5% growth

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

• $5.25 EPS or 2% growth

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

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

How does that compare to peers?

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

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

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

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

What could shares be worth?

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

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

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

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Summing it up…

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

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

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

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

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

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

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

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

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

Resources:

• 2020 IPO prospectus

• 2025 10-K

• 2026 Q2 10-Q

• 2025 investor day presentation

• Came public during 2021 SPAC boom

• Experienced COVID-era supernormal earnings

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

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

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

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

Recent write-ups include:

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

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

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

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

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

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• Upcoming spin-off of 2 disparate businesses

• Several recent “clean up” catalysts now completed

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

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

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

Recent write-ups include:

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

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

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

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

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

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Quick Value

Resideo (REZI)

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

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

This feels like one of those moments.

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

Let’s take a closer look…

Background

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

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

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

There are 2 segments pre-spin.

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

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

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

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

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

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

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Pre-Spin Fundamentals

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

Some items to note here:

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

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

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

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

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

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

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

RemainCo (Resideo)

Background

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

There are 3 sales channels:

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

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

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

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

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

What’s the financial picture?

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

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

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

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

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

So what could RemainCo shares worth?

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

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

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

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

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

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

Share Value Don't Lie

SpinCo (ADI Global)

Background

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

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

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

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

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

What’s the financial picture?

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

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

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

So what could SpinCo shares worth?

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

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

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

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

Summing it up…

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

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

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

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

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

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

Disclosure: no position in REZI.

Resources:

• 2018 Resideo spin-off filings from Honeywell

• 2025 Resideo 10-K

• 2026 ADI Global spin-off filing

• July 2026 ADI Global spin presentation

• July 2026 Resideo (RemainCo) spin presentation

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

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

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

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

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

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

Recent write-ups include:

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

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

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

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

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

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• Recently closed merger between Fubo and Hulu Live vMVPD platforms

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

• Abrupt CEO change brings in former head of Disney+

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

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

Recent write-ups include:

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

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

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

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

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

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Quick Value

FuboTV Inc (FUBO)

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

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

Background

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

Some history:

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

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

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

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

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

So let’s get this straight…

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

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

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

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

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

Hmm…

The Pay TV and vMVPD industry

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

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

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

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

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Why it’s interesting…

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

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

A few things make it compelling here:

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

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

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

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

Let’s start by looking at the fundamentals…

Some notes:

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

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

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

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

What about this lawsuit?

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

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

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

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

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

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What about the Hulu merger?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What could shares be worth?

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

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

Comps…

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

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

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

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

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

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

Not bad on a $10 stock.

Summing it up…

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

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

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

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

• Was the 2028 guidance reset deep enough?

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

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

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

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

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

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

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

Disclosure: no position in Fubo.

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

Resources:

• January 2025 Hulu deal presentation

• August 2025 merger proxy

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

• Q2 2026 10-Q

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

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

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

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

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

Recent write-ups include:

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

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

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

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

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

Quick Value

Mobility Global (MBGL)

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

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

Let’s find out…

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• Dominant industry player during deep industry recession

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

• Pending acquisition adds deep vertical integration

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

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

Recent write-ups include:

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

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

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

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

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

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

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Quick Value

Somnigroup International (SGI)

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

It seems fitting to give the acquirer a quick review.

Background

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

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

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

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

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

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

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

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

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

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

What is the state of the industry today?

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

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

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

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

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

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

Why it’s interesting…

There are 2 main reasons to like this idea here…

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

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

First, a look at the fundamentals at SGI

Some highlights:

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

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

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

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

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So what’s the outlook from here?

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

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

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

What about this Leggett (LEG) acquisition?

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

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

This is a really smart acquisition for SGI…

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

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

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Pro-forma financial picture…

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

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

Here’s my math when piecing these 2 together:

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

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

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

SGI management projections

LEG management projections:

Hmm…

So what could shares be worth?

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

Upside:

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

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

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

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

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

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

Summing it up…

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

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

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

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

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

Disclosure: no position in SGI or LEG

Resources:

• Somni + Leggett merger proxy

• Leggett (LEG) acquisition presentation

• March 2026 investor day presentation

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

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

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

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

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GoodCo / BadCo Situations

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

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

How would you value this company?

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