50 years later, Apple has a new CEO.

Would I sell my possessions to buy $AAPL today? Not even close.

Even under generous assumptions, my DCF says the shares are overvalued, and my fair value sits below Wall Street’s consensus.

KEY ASSUMPTIONS:

• Explicit average 5Y/5Y growth @ 9%/5.6%

• Long-term growth in perpetuity @ 2.6%

• EBITDA Margin 36.3% => 39.7%

• WACC @ 9.0%

• Adj. EBITDA exit multiple of 12.8

• Tax rate 18% - forward stat rate

• The input that drives reinvestment is the most recent Sales to Capital ratio = 3.9

GROWTH PROFILE

Apple is a mature but still structurally growing technology platform, with future expansion increasingly driven by Services, its installed device base, ecosystem monetization, premium pricing and AI-enabled product upgrades rather than rapid unit growth in hardware. FY2026 is shaping up as an unusually strong year, with consensus revenue growth around 15%, after Apple reported 16% year-over-year growth in its June quarter, while current estimates imply growth moderating toward roughly 9% in FY2027 and 8% in FY2028. Longer term, Apple should increasingly resemble a high-quality consumer/platform compounder rather than a hyper-growth technology company. Services should continue gaining mix, supporting recurring revenue and margins, while iPhone replacement cycles, wearables, emerging devices and AI integration provide incremental upside. The key constraints are Apple’s enormous existing revenue base, mature smartphone penetration and slower hardware innovation, making mid- to high-single-digit normalized long-term revenue growth a more reasonable base case than sustained double-digit expansion.

MOAT

We assign Apple a wide economic moat, supported by high switching costs, powerful intangible assets, and network effects. Its tightly integrated iOS ecosystem creates strong customer lock-in by connecting hardware, software, and services across products such as the iPhone, Mac, iPad, and Apple Watch. Apple also benefits from exceptional design and engineering capabilities, particularly its ability to integrate proprietary hardware, software, and semiconductors into differentiated, premium products. In addition, the scale and purchasing power of Apple’s customer base attracts a vast developer ecosystem, which in turn strengthens the value of its platforms. Together, these advantages support exceptional profitability and returns on invested capital, and I believe they are likely to sustain Apple’s economic profits for at least the next two decades.

VERDICT

CL intrinsic value for Apple is 225. Valuation suggests that the stock is trading at 45% premium to fair value. If adjusted to FV within 3 years, it will underperform by 12% annually.

Imperial Brands will get the capital it needs whether you own it or not. Cigarette volumes are falling, pricing power keeps offsetting the damage and yet, 7 years after Imperial Brands became the first stock I ever valued with a DCF, the shares are back in undervalued territory.

I had to run the model again.

KEY ASSUMPTIONS:

• Explicit average 5Y/5Y growth @ 2.0%/0.5%

• Long-term growth in perpetuity @ 0.5%

• EBITDA Margin constant 13%

• WACC @ 7.4%

• Adj. EBITDA exit multiple of 8.6

• Tax rate 25% - UK statutory main rate

• The input that drives reinvestment is the most recent Sales to Capital ratio = 1.62

GROWTH PROFILE

Imperial Brands has a low-growth but highly cash-generative profile, with combustible tobacco volumes structurally declining but strong pricing power continuing to more than offset much of the volume pressure. Management is targeting low-single-digit growth in tobacco net revenue, while next-generation products such as vape, heated tobacco and oral nicotine provide an additional growth leg, although they remain relatively small compared with the core cigarette business. NGP revenue grew 13.7% in FY2025 and 7.5% in H1 FY2026, while current analyst consensus points to overall Tobacco & NGP net revenue growth of roughly 2-2.5% annually through FY2028. The more important earnings story is operating leverage, efficiency initiatives and capital returns: Imperial is targeting 3-5% adjusted operating-profit growth, at least £2.2bn of annual free cash flow, and continued large share buybacks, allowing EPS to grow materially faster than revenue even in a slowly shrinking underlying tobacco market.

MOAT

Imperial Brands earns a wide economic moat rating, primarily due to intangible assets supported by the addictive nature of tobacco products and substantial barriers to entry. However, analysts view the company as somewhat lower quality than larger wide-moat peers Philip Morris International and British American Tobacco, given its heavier exposure to developed markets where cigarette volumes are declining faster, and its greater reliance on discount brands.

VERDICT

CL intrinsic value for IMB is GBP 34. Valuation suggests that the stock is trading at 36% discount to fair value. If adjusted to FV within 3 years, it will generate 11% in annual alpha. Seriously considering position.

KEY ASSUMPTIONS:

• Explicit average 5Y/5Y growth @ 5.0%/3.8%

• Long-term growth in perpetuity @ 2.5%

• EBITDA Margin 54.3% -> 56.8%

• WACC @ 7.3%

• Adj. EBITDA exit multiple of 13.8

• Tax rate 21% - in line with historical average

• The input that drives reinvestment is the most recent Sales to Capital ratio = 0.6 – acceptable given that MCD generally owns or leases the land/building

GROWTH PROFILE

McDonald’s is a mature, high-quality compounder whose growth is increasingly driven by a combination of same-store sales, new restaurant openings, pricing, digital/loyalty penetration and franchise economics rather than rapid underlying market expansion. Management is currently accelerating unit growth, targeting roughly 50,000 restaurants by the end of 2027, with approximately 2,600 gross openings planned for 2026 and slightly above 4.5% net unit growth. Its loyalty ecosystem has reached nearly 220 million active users and about $40 billion of annualized systemwide sales. Recent systemwide sales growth remains around the mid-single digits, supported by international expansion, menu innovation, delivery and digital engagement. In my model, I therefore view McDonald’s as a modest revenue growth business, with incremental EPS and FCF growth supported by its heavily franchised model, operating leverage and capital returns rather than sustained high organic growth. My 68% terminal-value contribution is also perfectly acceptable for a mature company.

MOAT

McDonald’s earns a wide Economic Moat rating, anchored by strong intangible assets and a durable cost advantage. It’s the largest player in global foodservice, with over $139 billion in systemwide sales and a 4.2% share (more than double Yum Brands’ 2% and roughly triple Restaurant Brands’ 1.4%, despite both being multibrand operators). That share has held steady in an industry defined by low barriers to entry and minimal switching costs, which we should read as genuine evidence of brand strength: pricing power, strong unit economics, and repeatable international replication. Scale adds a real cost edge too, via procurement leverage and the ability to spread technology and marketing spend across a much larger sales base. The payoff shows up in returns: 22% ROIC (including goodwill) against a 7% WACC over the past decade. This spread is sustainable over a 20-year horizon, underpinning the wide moat rating.

VERDICT

CL 250 price target suggests that the stock is fairly valued. Given MCD’s Wide Moat someone still can find shares attractive. From my prospective, at the moment I prefer government bonds ETF, because I believe they can deliver very similar return with less risks.

Keep in mind that this is an estimate - just like any DCF model. I’m not claiming perfection, but I do trust these calculations to assist with my own investments. Hopefully, they can help inform yours as well. If you choose to share it online, please credit my page as the source. Look at it as a thinking tool, not necessarily as a stock-picking tool.

KEY ASSUMPTIONS:

• Explicit average 5Y/5Y growth @ 5.4%/3.8%

• Long-term growth in perpetuity @ 2.6%

• EBITDA Margin 33% -> 34.5%

• WACC @ 6.5%

• Adj. EBITDA exit multiple of 9.6

• Tax rate 24% - marginal stat rate

• The input that drives reinvestment is the most recent Sales to Capital ratio = 0.98

GROWTH PROFILE

Wolters Kluwer has a high-quality, recurring mid-single-digit growth profile, having delivered roughly 6% organic annual growth recently, supported by structural migration from print toward digital workflow solutions, pricing power, cross-selling and increasing cloud adoption. Recurring revenues now represent about 83% of group sales, while cloud software grew 15% organically in 2025, making the revenue base increasingly predictable and scalable. Management expects another year of “good” organic growth in 2026, with Health around its prior 5% rate, Tax & Accounting around 7%, and Legal, Financial & Corporate Compliance and Corporate Performance & ESG expected to accelerate versus 2025. AI is becoming an additional growth vector rather than a replacement threat: Wolters Kluwer is raising product-development spending to 12-13% of revenue while embedding AI into its proprietary professional content and workflow products. Overall, I believe a reasonable next 5Y profile is circa 5% organic revenue growth, supplemented by modest acquisitions and buybacks, with operating leverage allowing earnings to grow somewhat faster than revenue.

VERDICT

My valuation suggests that the stock, trading at 69 EUR, is 37% below its intrinsic value (110 EUR). If adjusted to FV within 3 years, it can generate 17% in annual alpha. Attractively priced, 2% of portfolio.

Trump’s August 6, 2026 Section 232 proclamation on polysilicon and downstream solar products does have impact on Toyo. It is a significant trade-policy change, not just a general comment about U.S. solar subsidies.

The policy has three main pieces:

Minimum import prices, effective December 4, 2026: $0.22/W for imported solar cells and $0.38/W for imported modules, plus floors for polysilicon and wafers. If the declared import value is below the floor, the importer effectively pays the difference as a tariff.

An additional 15% Section 232 tariff on imported polysilicon derivatives, including covered solar cells/modules, also effective December 4.

Crucially for TOYO, Commerce dept can grant company-specific tariff offsets/exemptions to companies committing capital to U.S. manufacturing. Approved companies can import cells, wafers, equipment, etc. without the Section 232 duties in volumes linked to their U.S. investment.

That last point explains the somewhat confusing language I found in TOYO’s earnings release.

Why it can hurt TOYO in H2 2026

TOYO manufactures modules in Texas, but it does not yet manufacture the cells there. Its planned 1.5 GW HJT cell plant in Humble, Texas won’t begin pilot production until Q1 2028 at the latest. In the meantime, TOYO relies heavily on imported cells, principally from its Ethiopian operation.

So without an exemption, the structure becomes roughly:

Ethiopia cell factory → import cells into U.S. → Texas module factory

↓

new Section 232 MIP + potentially 15% tariff

↓

higher module COGS / lower margin or higher selling prices.

That is what CEO Onozuka means when he says:

“we do expect an impact on our second-half results”

and why immediately afterward the company says it is talking with Commerce about an “investment offset.”

But this could actually become very favorable for TOYO.

TOYO has a strong argument for receiving that offset because it is already committing $357m to build the 1.5 GW HJT cell plant in Texas. The company explicitly says it intends to use that investment as the basis for its Section 232 onshoring plan.

There’s another unusually favorable detail: TOYO says about 70% of the polysilicon used in its Ethiopian production already comes from a U.S. producer, with the remaining ~30% coming from OCI in Malaysia, and it intends to move toward 100% U.S. polysilicon by Q4 2026. The proclamation specifically allows Commerce to make tariff benefits more favorable depending on the use of American polysilicon.

So TOYO is basically negotiating this:

“We are investing $357m to bring cell production to America. Until that plant is operational, allow us to continue importing our Ethiopian cells without the new tariff.”

That’s what the investment offset means.

From an investor’s perspective the policy is short-term uncertainty, potentially long-term positive for TOYO.

Without the Commerce offset, the new tariffs could pressure TOYO’s extremely strong current margins, especially because ~81% of H1 2026 revenue came from U.S. customers.

But if Commerce approves TOYO’s plan, TOYO could get the best of both worlds for several years: temporary duty-free imported cells + protected U.S. module pricing + eventually domestic U.S. cell manufacturing + Section 45X manufacturing credits.

That probably explains why management is simultaneously saying “H2 impact” and “policy direction is supportive of TOYO’s long-term position.” Those statements aren’t contradictory.

There is also a separate risk that I watch more closely: Commerce’s July 2026 anti-circumvention investigation into Ethiopian solar cells. That is a different proceeding and could potentially expose Ethiopian-origin cells to much more severe China-related AD/CVD duties.

At the moment, company is trading at 1x 2028 FCF estimate which is still essentially intact as of August 25, 2026. Even if something goes wrong, any possible reduction is already reflected in drawdown, in my view.

Bullish $TOYO.

Not DECK.

Even after the collapse, shares have still delivered 23% annualized returns over the past 10 years.

The question now is whether the story broke, or just the valuation.

KEY ASSUMPTIONS:

• Explicit average 5Y/5Y growth @ 7.0%/4.3%

• Long-term growth in perpetuity @ 2.5%

• EBITDA Margin compression 24% -> 22% in Y10

• WACC @ 9.3%

• Adj. EBITDA exit multiple of 9.7

• Tax rate 23% - marginal stat rate

• The input that drives reinvestment is the forward-looking Sales to Capital ratio 4.65 -> 2.90

GROWTH PROFILE

Deckers has evolved from a niche footwear company into a high-quality growth business, driven primarily by HOKA and UGG. FY2026 revenue increased 9.8% to $5.47bn, with HOKA growing 15.9% and UGG 8.2%, while international sales surged 26.8%, highlighting substantial runway outside the U.S. Growth moderated in Q1 FY2027, with total sales up 5.7%, HOKA up 7.7% and UGG up 4.9%, but management still expects FY2027 revenue of roughly $5.86-5.91bn and, more importantly, guides for high-single-digit annual revenue growth through FY2030, supported by low-double-digit HOKA growth and modest UGG growth. This suggests DECK is transitioning from its earlier hyper-growth phase toward a more sustainable high-single-digit growth profile, with international expansion, product innovation and continued HOKA market-share gains remaining the principal long-term drivers.

MOAT

ROIC is truly impressive and has been steadily increasing for nearly a decade. It’s definitely a sign of a narrow moat, and Morningstar analysts agree!

DECK is unusually capital-efficient for a consumer/apparel company. FY2026 revenue was $5.47bn, while net PP&E was only $338m. Capex was just $85m, or roughly 1.5% of sales.

The business also has a very large cash balance ($1.91bn at March 2026) which I stripped out when calculating sales/Invested Capital ratio for capex. Good news for investors is that Deckers has been buying back stock very aggressively in 2026, returning excess cash to shareholders. On a TTM basis, they almost bought back 10% of the company at a price that is widely considered to be below intrinsic value.

VERDICT

The CL intrinsic value for DECK is 120, indicating the stock trades at a 24% discount to fair value. If it reaches fair value within three years, it could deliver an average annual alpha of 10%.

KEY ASSUMPTIONS:

• Explicit long-term average growth @ 2%

• Long-term growth in perpetuity @ 2%

• Adj. EBITDA Margin improving slightly 37% -> 39%

• WACC @ 7.0%.

• Adj. EBITDA exit multiple of 9.4

• Tax rate 15% - forward marginal stat rate

• The input that drives reinvestment is the most recent Sales to Capital ratio = 0.46, linearly regressed to the Beverage (Alcoholic) average rate of 1.06 in year 10

GROWTH PROFILE

USA remains mature beer market facing structural volume declines, yet region still sustains revenue growth through premiumization, innovation, and portfolio diversification into non-alcoholic offerings. Beer consumption per legal-age adult dropped from 29 gal in 2010 to 23 gal in 2024, which equates to roughly -1.6% CAGR. The deterioration accelerated in 2025: total U.S. beer production + imports fell another 5.7% YoY, following a roughly 1-2% decline in 2024. An official comparable 2025 per-capita figure isn’t yet published in the source I found, but the volume data imply it likely fell to roughly 21.5-22 gallons per 21+ adult.

Constellation Brands’ beer growth thesis therefore depends on market-share gains, premiumization, Mexican beer penetration, and pricing. In other words, Modelo/Corona can continue growing even while Americans drink less beer overall, but increasingly that growth is expected to come at competitors’ expense rather than from category expansion.

The near-term Company’s outlook is quite weak. After FY2026 net sales of $9.139bn, management currently guides FY2027 organic net sales growth of -1% to +1%.

By 2023, revenue in USD terms is expected to accelerate slightly, therefore a reasonable rate to use as the headline five-year growth assumption is around 2%.

MOAT

Constellation Brands has a Wide moat, and this is reflected in the terminal value formula since company can create value beyond 10Y explicit period. 64% of EV is derived from TV, which is within a normal range.

VERDICT

CL intrinsic value stands at 173. Valuation suggests that at 136, where the stock is trading, there is a 20% discount to fair value. If adjusted to FV within 3 years, it will generate 8% of annual alpha. Attractively priced, considering the position.

Keep in mind that this is an estimate - just like any DCF model. I’m not claiming perfection, but I do trust these calculations to assist with my own investments. Hopefully, they can help inform yours as well. If you choose to share it online, please credit my page as the source. Look at it as a thinking tool, not necessarily as a stock-picking tool.

Genuine undervaluation is getting harder to find. My DCF is standalone and excludes the Synaptics deal. If you guys see an opportunity I’m missing, drop the ticker in the comments - I’ll consider modeling it next.

KEY ASSUMPTIONS:

• Explicit average 5Y/5Y growth @ 13.2%/7.8%

• Long-term growth in perpetuity @ 2.6%

• EBITDA Margin expansion 25%->39% by Y10

• WACC @ 12.2%

• Adj. EBITDA exit multiple of 10.7

• Tax rate 17% - forward-looking stat and in line with OECD’s Pillar 2 “Global Minimum Tax”

• The input that drives reinvestment is near-term expected Sales to Capital ratio = 2.5, linearly regressed to the Semiconductor average rate of 1.15 in Y10

GROWTH PROFILE

ON Semiconductor’s growth profile has clearly inflected out of the 2023-2025 auto/industrial destocking trough: Q2 2026 revenue came in at $1.60 billion, up 9.2% year-on-year, with Q3 2026 revenue guided to $1.65-$1.75 billion, and sell-side analysts expecting roughly 10.7% growth over the coming year. The growth mix has shifted decisively toward AI infrastructure, while Power Solutions Group revenue rose 19% year-over-year in Q2, and management now expects AI data center revenue to more than double in 2026, supported by new design wins with NVIDIA MGX, Great Wall, and AWS, alongside silicon carbide revenue in China expected to grow 60–70% year-over-year on share gains with customers like Geely. The legacy auto and industrial base is recovering on a slower, steadier path. CFO guidance calls for auto up low-single digits and industrial roughly flat in Q3 as channel inventory normalizes. Layered on top is the pending $7 billion all-stock acquisition of Synaptics, which is expected to close in mid-2027 and would expand Onsemi’s addressable market by $30 billion to $243 billion by 2030, pushing the growth story beyond power and sensing into edge/physical AI compute, with management guiding to non-GAAP EPS accretion within 18 months of close and $200 million in annual synergies. Net-net: a business moving from a cyclical-recovery story to one increasingly levered to AI-driven secular demand, with the September 16, 2026 Analyst Day likely to be the next catalyst for updated long-term growth targets.

VERDICT

Model suggests that the stock is trading close to my intrinsic value estimate.

There’s just one problem:

At today’s price, my DCF says you’re getting exactly what you’re paying for.

KEY ASSUMPTIONS:

• Explicit average 5Y/5Y growth @ 4%/4.3%

• Long-term growth in perpetuity @ 2.6%

• EBITDA Margin 54% -> 57.6%

• WACC @ 8.5%

• Adj. EBITDA exit multiple of 13.9

• Tax rate 22% - forward stat rate due to OECD’s Pillar 2 “Global Minimum Tax”

• The input that drives reinvestment is forward-looking Sales to Capital ratio = 3.4

GROWTH PROFILE (FOR CONTEXT)

S&P Global is expected to deliver high-quality mid-to-high single-digit structural growth, supported by recurring subscription revenues, pricing power, rising demand for financial and alternative data, growth in private markets and energy intelligence, increasing debt issuance over time, and continued flows into index-linked products. Following the July 2026 spin-off of Mobility, the remaining business is more concentrated around its higher-margin financial-data, ratings, energy and index franchises. Management targets 7-9% average annual organic constant-currency revenue growth over the medium term, including 6-8% for Market Intelligence, 6-9% for Ratings, 6-8% for Energy and 10-12% for S&P Dow Jones Indices. Growth can be somewhat cyclical in Ratings and Indices because issuance volumes and market levels fluctuate, but the underlying subscription and benchmark businesses provide considerable resilience. Notably, SPGI still delivered 11% revenue growth in Q2 2026. For my DCF a reasonable base case is therefore roughly 7-9% growth during the next five years, gradually fading toward 3-4% as the company matures, before converging toward a terminal growth rate near nominal economic growth.

The -8% Year 1 revenue call is due to the Mobility Global spin-off, which became effective July 1, 2026, with Mobility’s historical results moving to discontinued operations starting in Q3 2026.

EBITDA MARGIN

By 2030, I anticipate the adjusted EBITDA margin will reach approximately 55.7%, marking an increase of about 400 basis points from 2025. This margin growth results from revenue increases, sustained expense control, and the divestment of lower-margin Mobility Global, contributing roughly 100 basis points to the expansion. Generally, S&P Global’s operations have minimal variable costs, and high-single-digit organic revenue growth forecast should support operating leverage.

VERDICT

CL intrinsic value for S&P Global is 409. Valuation suggests that the stock is trading at fair value. Buying a wonderful business at fair value can still be a good idea, especially considering how expensive the market is at the moment.

Key assumptions:

• Explicit average 5Y/5Y growth @ 5%/3.8%

• Long-term growth in perpetuity @ 2.6%

• Initial EBITDA Margin 16.7% -> 18.6%

• WACC @ 7.5%

• Adj. EBITDA exit multiple of 13.4

• Tax rate 25% - in line with historical average

• The input that drives reinvestment is the most recent Sales to Capital ratio = 3.17

Growth profile (for context)

OTIS has a moderate, service-led growth profile rather than a high-growth industrial story. The core driver is its large installed base of roughly 2.5 million units under service, which generates recurring maintenance revenue and creates a natural pipeline for higher-value repair and modernization work. In Q2 2026, Service organic revenue grew 9%, including 24% growth in modernization, while New Equipment organic sales declined 1%, still pressured by weakness in China. Management currently expects low to mid-single-digit organic growth overall in 2026, with Service growing mid-to-high single digits and New Equipment roughly flat to slightly down. Over the longer term, I incorporate approximately a 4-6% organic revenue growth, increasingly driven by the higher-quality Service and modernization businesses, with urbanization, an aging global elevator installed base, pricing and digitalization providing structural support rather than requiring strong new-construction growth.

Verdict

Valuation suggests that OTIS is trading at 20% discount to fair value. If that gap closes over the next three years, it could translate into around 8% annual alpha.

In this post, I’ll walk you through Rheinmetall’s intrinsic valuation and the company’s business story.

RHM’s main listing is on the XETRA stock exchange in Germany. Its stock price increased 13-fold over the past five years, which is very rare performance for a defense stock. This impressive return was primarily driven by the Russian invasion of Ukraine and NATO’s increased military spending plans. Return can be broken down further into P/E multiple expansion by 4.6x (from 10.5 in 2021 up to 46.68 currently) and an EPS increase of 3x.

Rheinmetall now stands out as a key beneficiary of NATO’s pledge to allocate 3.5% of GDP on core defense by 2035, Germany’s Zeitenwende speech, and continued Ukraine-driven replenishment demand. The company’s influence has grown so significantly that the Russian government reportedly contemplated assassinating CEO Armin Papperger.

The stock is down by 23% year-to-date, and as thoughtful investors, you are eager to see how appealing the current share price is compared to its expected future cash flows. We will find out this together.

Description of business

Rheinmetall AG is a technology group that delivers advanced solutions to both the mobility and security sectors. Its operations are structured into three distinct business units: Vehicle Systems, Weapon/Ammunition and Electronic Solutions. Sensors and Actuators, and Materials and Trade were the two operating segments under Rheinmetall’s former civilian Power Systems division (the old Automotive/Pierburg business), which Rheinmetall has now fully exited to concentrate on defense.

Founded in 1889 and headquartered in Düsseldorf, Germany, the company was initially known as Rheinmetall Berlin AG before adopting its current name, Rheinmetall AG, in 1996.

I have to admit that Rheinmetall’s story and products range deserve a full separate long-format article, but today I want to release this valuation to you as soon as possible. I am genuinely interested and maybe I will dedicate a separate post in the future to cover more about it. RHM history was not always a bright spot.

Now. Let’s explore the valuation.

Key assumptions:

• Explicit average 5Y/5Y growth @ 33.6%/18%

• Long-term growth in perpetuity @ 2.6%

• EBITDA Margin 24-26%

• WACC @ 8.5%

• Adj. EBITDA exit multiple of 9.9

• Tax rate 23% - in line with historical average

• The input that drives reinvestment is the most recent Sales to Capital ratio = 1.47

Growth profile (for context)

Group revenue is reported by division rather than individual product. Based on FY2025 results, group sales hit a record €9.94 billion, up sharply from 2024, split across three divisions.

Vehicle Systems is the largest, at €4,992 million (+32% YoY). This is the armored vehicle business and includes products such as Boxer wheeled armored vehicles, Leopard 2 A8 battle tanks, HX2 military trucks, and swap-body logistics vehicles. Boxer in particular has become the volume driver as multiple NATO members ramp up orders.

Weapon and Ammunition comes next at €3,532 million (+27% YoY), and it’s actually the most profitable division by a wide margin (29% operating margin vs. 11.7% for Vehicle Systems). This segment covers artillery and tank ammunition, weapon systems, and propellants for which demand pulled hard by Germany, NATO restocking, Ukraine, and a large mobile-rescue-station framework deal, plus Nordic orders from Denmark, Finland, Norway and Sweden.

Electronic Solutions is smallest but fastest-growing at €2,504 million (+45% YoY), covering air defence systems (Skyranger and Skynex), digitisation programs like TaWAN for the German army, soldier systems (IdZ-ES), and electronics/sensors more broadly. Note this division is being split into separate Digital Systems and Air Defence segments starting in 2026.

Order backlog hit roughly €73-80 billion by mid-2026, up from €56 billion a year earlier, and CEO Armin Papperger has guided toward quintupling group sales from about €9.8 billion (2024) to €50 billion by 2030. To stay conservative and factor in management bias, in my DCF workings I forecast a lower figure ~44B by mid-2031. This is also in line with analysts’ estimates as cross-checked to CapIQ.

EBITDA margin

My starting point is TTM Adj. EBITDA margin at 23.4%. Historically, the EBITDA margin trend has been on a stable upward trajectory since 2015.

Going forward, I believe it makes sense to factor in the margin-improvement to 26% by Y10. This improvement will be driven by genuine mix-shift into higher-margin Ammunition and Air Defence plus operating leverage on new capacity. The capex/D&A intensity of the current buildout is the main reason I wouldn’t go higher without more visibility on how quickly the new plants season into full utilization.

Moat

Most independent coverage classifies Rheinmetall as wide moat, and the fundamentals back that up. Nevertheless, it’s worth being clear-eyed about what kind of moat it is, because it’s not the classic durable-brand or network-effect kind.

Main moat sources:

• Extremely high regulatory, certification and security-clearance barriers.

• Decades-long customer relationships with governments and NATO forces.

• High switching costs: military platforms remain in service for decades and require compatible ammunition, upgrades and maintenance.

• Proprietary technology across ammunition, air defence, armoured vehicles and military electronics.

• Efficient scale: enormous investment is required to develop, test and industrialize defense products.

• Scarce European production capacity, especially in large-calibre ammunition.

• Growing installed base creates recurring ammunition, maintenance and upgrade demand.

The principal weakness is dependence on government budgets and large contract awards. Orders can be delayed or cancelled, as demonstrated by Germany’s F126 decision. Rheinmetall still shows record backlog, meaning that such cancellations did not damage the underlying competitive position so far.

Where the “narrow” argument comes in

The honest caveat is that this moat is largely government-erected rather than product-erected. It’s closer to a regulatory/political moat (like a utility or a gambling licensee) than a patent or brand moat. That matters because it can widen or narrow fast with policy. The entire re-rating since 2022 is a function of NATO Europe rearmament and the Ukraine war; a durable peace settlement or a swing back toward “peace dividend” defense budgets would compress the growth runway, even if the installed-base switching costs stay intact. There’s also customer concentration (government budgets, not diversified private demand) and real execution risk in the capacity ramp. Rheinmetall is pouring capital into new ammunition and vehicle plants, and if book-to-bill normalizes before that capacity is fully absorbed, returns on that invested capital could disappoint. The recently reported approach toward parts of KNDS also signals that consolidation pressure among European primes is still very much live, which is a sign the competitive landscape isn’t fully settled.

For disclosure purposes, I still incorporate a wide moat into my model – this affects the terminal value calculation and can deviate the intrinsic value by +/- 15%.

P/E ratio

One important observation. When valuing a stock, I normally use Mauboussin’s PE framework to gain a quick idea about attractiveness. If you didn’t have a chance to read about this, have a look. It’s very useful framework which can help to evaluate P/E ratio based on expected ROIC and forward growth. For Rheinmetall, most websites show PE = 47, which is based on reported numbers. To get normalized P/E, this reported ratio needs to be adjusted for the loss from discontinued operations (added back) to get to normalized P/E. On a TTM basis, net income attributable to common shareholders was 887 mln. We need to add back 492 mln of loss on disposal of Sensors and Actuators/Materials and Trade segments. Rheinmetall sold entire civilian division to the investment firm AEQUITA for €350 million in June 2026. The price looked like a striking gap between the €2bn revenue base and the sale price, which drew some market criticism at the time. No matter what, this is a one-off transaction and if added back, the normalized Net Income was 887+492*(1-0.25) = 1,256 mln. To come up with normalized EPS, we need to divide 1,256 mln by number of shares outstanding 46.6mln and use EPS=27 EUR for the purposes of PE calculation. That gives us P/E = 44 (1,200 EUR/27 EUR), slightly lower than reported by data providers. Overall, the P/E level is justified given the company’s growth and ROIC profile.

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Verdict

CL intrinsic value for RHM is 1,946 EUR. Valuation suggests that the stock is trading at 38% discount to fair value. If adjusted to FV within 3 years, it will generate an annual alpha @ 17%.

One important outcome worth mentioning: the bulk of the valuation (roughly EUR78.2bn of the EUR92.6bn enterprise value, or about 85%) comes from the value assigned to cash flows after the explicit forecast period. The remaining EUR14.3bn (15%) is the present value of the forecasted cash flows in years 1-10. It means the DCF valuation is highly dependent on assumptions beyond the explicit forecast period. This is important, since any change in model assumptions can change intrinsic value dramatically.

As a refugee with firsthand experience near Russia, it is my deep conviction that companies like Rheinmetall and SAAB will continue to be vital. The Eastern threat to modern democracies remains persistent, and NATO countries are aware of this reality.

Keep in mind that this is an estimate - just like any DCF model. I’m not claiming perfection, but I do trust these calculations to assist with my own investments. Hopefully, they can help inform yours as well. Look at it as a thinking tool, not necessarily as a stock-picking tool.

Key assumptions:

• Explicit average 5Y/5Y growth @ 9.2%/4.8%

• Long-term growth in perpetuity @ 2.5%

• EBITDA Margin ~35%

• WACC @ 11%

• Adj. EBITDA exit multiple of 10.3

• Tax rate 19% - in line with forward marginal rate

• The input that drives reinvestment is the forward-looking Sales to Capital ratio = 2.00

Growth profile (for context)

NXP’s revenue grew at a 7% CAGR from 2020 to 2025, driven primarily by automotive semiconductor content, although sales effectively plateaued after 2022 and declined to $12.3 billion in 2025 amid inventory correction and weak industrial demand. The cycle has now turned: Q2 2026 revenue increased 19% year over year, with growth across every end market, led by Industrial & IoT (+38%) and Automotive (+12%). Longer term, growth should be supported by software-defined vehicles, electrification, radar, secure connectivity and edge AI, while slower Mobile and Communications Infrastructure businesses remain a drag. Overall, NXPI appears capable of approximately 9% normalized revenue growth, although near-term recovery growth will likely be materially higher before moderating toward mid-single digits after 2030.

Moat

NXPI has a wide economic moat, although it sits toward the weaker end of the wide-moat category.

The moat rests primarily on:

1. High switching costs: Automotive chips require lengthy design, testing and safety qualification. Once an NXP component is designed into a vehicle platform, replacing it can be costly and risky.

2. Long product cycles: Automotive programs can generate revenue for many years after the original design win.

3. Intangible assets: Strong expertise and IP in automotive microcontrollers, in-vehicle networking, radar, NFC/UWB, security and mixed-signal chips.

4. Broad system offering: The S32 platform and associated software allow NXP to sell integrated solutions rather than isolated components.

5. Established leadership: NXP reports leading positions across automotive networking, radar, secure vehicle access and several analog applications. Its 2025 filing explicitly highlights stringent qualification, reliability and safety requirements as significant barriers to entry. NXP 2025 annual report.

It is definitely not an ASML- or TSMC- quality wide moat. NXP faces capable competitors including Infineon, Renesas, STMicroelectronics, Texas Instruments and Qualcomm. Chinese localization, customer pricing pressure and technological transitions could weaken individual franchises.

Verdict

Calculated intrinsic value stands at 199, which is 15% below current price.

Key assumptions:

• Explicit average 5Y/5Y growth @ 2.8%/8%

• Long-term growth in perpetuity @ 2.5%

• EBITDA Margin 42%-44%

• WACC @ 7.5%.

• Adj. EBITDA exit multiple of 10

• Tax rate 21% - in line with stat rate

• The input that drives reinvestment is the most recent Sales to Capital ratio = 0.74, linearly regressed to the Drugs (Pharmaceutical) average rate of 0.83 in year 10

Growth profile (for context)

Zoetis’s expected revenue growth has weakened materially following its Q2 2026 guidance cut. For a ten-year DCF, I use approximately 3% annual revenue growth, with a recovery profile rather than a constant rate.

Why the forecast is now lower:

Zoetis reduced 2026 revenue guidance to $9.12–$9.32 billion, versus approximately $9.47 billion in 2025.

Q2 revenue was flat reported and down 1% organically, reflecting weaker companion-animal demand, price sensitivity, fewer veterinary visits and increasing competition.

Management historically targeted mid-to-high-single-digit growth, but that target currently looks too optimistic without a strong pipeline-led recovery.

Verdict

My intrinsic value for Zoetis is 107. Valuation suggests that the stock is trading at 29% discount to fair value. If adjusted to FV within 3 years, it will generate an annual alpha @ 12%.

Key assumptions:

• Explicit average 5Y/5Y growth @ 28.4%/11.8%

• Long-term growth in perpetuity @ 2.6%

• EBITDA Margin 45%, improving gradually

• WACC @ 10.6%.

• Adj. EBITDA exit multiple of 7.5

• Tax rate 20% - marginal forward rate

• The input that drives reinvestment is the most recent Sales to Capital ratio = 0.4, linearly regressed to the Software (System & Application) average rate of 0.75 in year 10.

Growth profile (for context)

Oracle’s revenue growth is expected to accelerate sharply because of OCI and AI infrastructure contracts.

Management previously projected revenue of $85B in FY2027, $130B in FY2028, $185B in FY2029 and $225B in FY2030. That is about a 31% CAGR from FY2025 and assumes enormous data-center construction, continued financing availability, and successful conversion of unusually concentrated AI contracts into revenue. For DCF model, treating the full $225 billion FY2030 target as the base case would be too optimistic. Therefore, I forecast the same revenue amount, but a year later, in 2031.

One important note – debt/equity @ 3.5 suggests that the company is deliberately using substantial debt to finance its accelerated AI/cloud infrastructure expansion. This naturally makes investment riskier. That is why when calculating WACC, I am using higher-end beta and 2% implied default premium (credit-default swaps traded near 200 basis points on 29 July 2026).

Verdict

CL intrinsic value for Oracle is 141 USD, which is close to market price 145$. Given that this is highly indebted narrow-moat stock, entry is not justified in my view. Another important caveat here - Enterprise value is ~100% terminal value which is unusual and means that there is a lot of uncertainty surrounding this stock.

Key assumptions:

• Explicit average 5Y/5Y growth @ 17%/9.5%

• Long-term growth in perpetuity @ 2.6%

• Gradual improvement in Adj. EBITDA Margin by 8% in Y10

• WACC @ 9.6%

• Adj. EBITDA exit multiple of 13.3 calculated using Mauboussin’s P/E framework

• Tax rate 19% - in line with marginal rate

• The input that drives reinvestment is forward-looking Sales to Capital ratio = 0.5, linearly regressed to the Software (Entertainment) average rate of 1.00 in year 10

Growth profile (for context)

Google has achieved an 18% CAGR in revenue over the past 10 years. More recently, the growth rate has been more moderate, typically between 10% and 15%.

In the 2025 reporting year, 56% of Google’s revenue comes from the Search segment, 12% from Cloud, and 10% from YouTube Advertising Revenue. The global search engine market share increased from 89.54% in June 2025 to 91.32% in July 2026, reinforcing Google’s dominant position in search.

While antitrust concerns around Alphabet’s core search business have made headlines, analysts retain confidence in Alphabet’s overall strength and foresee the firm remaining at the forefront of a variety of verticals, including search, artificial intelligence, video, and cloud computing.

Moat

Google possesses a wide moat due to its intangible assets, network effect, cost advantage, and customer switching costs.

One powerful illustration about the depth of Google’s moat can be found in the PC market. Most PCs worldwide run Windows with Microsoft Edge pre-installed. However, most Windows users prefer installing Google Chrome and using Google Search rather than sticking with Bing on Microsoft Edge.

Verdict

On average, analysts think Google is undervalued by 20%. My valuation at $335 indicates that the stock is fairly valued. It can still be a worthwhile addition for a patient investor. Recall WB’s quote?

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Keep in mind that this is an estimate - just like any DCF model. I’m not claiming perfection, but I do trust these calculations to assist with my own investments. Hopefully, they can help inform yours as well. Feel free to share it online and credit my page as the source. Look at it as a thinking tool, not necessarily as a stock-picking tool.

Key assumptions:

• Explicit average 5Y/5Y growth @ 24%/9.3%

• Long-term growth in perpetuity @ 2.6%

• High initial EBITDA Margin, fading gradually to 68% in Y10

• WACC @ 10.5%.

• Adj. EBITDA exit multiple of 10.3

• Tax rate 18% - company’s historical average

• The input that drives reinvestment is forward looking Sales to Capital ratio = 0.95

Historical and forward growth rate

TSMC has delivered an exceptional 18.6% revenue CAGR since its 1994 listing, with growth accelerating recently as demand for advanced process nodes and AI accelerators expanded; revenue increased from approximately US$45.5 billion in 2020 to US$122.4 billion in 2025, representing a five-year CAGR of about 22%. Looking forward, analysts expect close to 30-40%% US-dollar revenue growth in 2026 and management has raised its strategic outlook to a revenue CAGR approaching 25% between 2024 and 2029, driven by N3 and N2 adoption, advanced packaging and rapidly growing AI-accelerator demand. Beyond 2029, however, growth should gradually normalize as company becomes substantially larger, making a fade toward high-single-digit or low-double-digit growth by the mid-2030s a reasonable base-case assumption for a DCF.

Moat

Taiwan Semiconductor possesses a wide moat supported by supply, demand, and network domains.

Verdict

CL intrinsic value for TSM is 436. Valuation suggests that the stock is trading at fair value.

In July, I continued portfolio de-risking by disposing high-beta stocks. Further disposals are expected within the next few months.

I also recently decided to change my portfolio construction strategy by rebalancing into stocks selected with CL proprietary magic formula. I explained this strategy a few months ago here:

This decision stems from my portfolio only slightly outperforming the index, despite extensive research and DCF modeling efforts. While matching the index is an acceptable result (since about 80-90% of active investors tend to underperform a broad index over periods longer than 10 years), I recognize there is room for improvement.

Matching the index alone isn’t the best use of personal time, which is Earth’s most valuable resource. Instead, you can just buy an index fund and chill, freeing up more time for enjoyable activities like playing video games, watching YouTube, spending quality moments with family, reading, or anything else you prefer.

At the same time, demo portfolios selected with the CL magic formula keep delivering great results.

Taking all this into consideration, I am now eager to test the CL magic formula with real money and will reshuffle my stock portfolio (which constitutes around 40% of my current portfolio allocation) into a Wide Moat+ GARP strategy by the end of this year.

I will continue analyzing selected stocks with DCF models and Maubousin’s PE framework (which is sort of simplified DCF as well). I will continue updating my Substack readers with monthly portfolio reviews.

I tried to understand why I couldn’t outperform the index despite my DCF valuations indicating undervaluation. I concluded that most of the stocks I picked were narrow moat stocks, which can be easily penetrated and outcompeted. When a moat is narrow, growth slows, margins shrink, and ROIC declines. As the moat erodes, the DCF model quickly becomes outdated. Recently, Adobe and Lululemon were examples of companies that had wide moats but were downgraded to narrow, leading to disruption. Stock prices drop sharply once the market recognizes these changes.

A valid question arises: if I can’t outperform using narrow moat undervalued stocks, why should I believe I can do so with Wide Moat + GARP stocks? The reality is that beating the market with any strategy is challenging. Wide moat stocks are also priced by the same market forces. Nevertheless, I continue to trust my magic formula because several research papers have shown that quality stocks are frequently undervalued by the market. Asness, Frazzini, and Pedersen paper “Quality Minus Junk” found that high-quality firms exhibit high risk-adjusted returns (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2312432). Morgan Stanley found that companies within the MSCI World Index that combine high sales growth, strong margins and attractive returns on invested capital consistently outperformed over multiyear periods. Notably, these companies also tended to exhibit lower volatility than many lower-quality peers, highlighting the potential benefits of quality across both return and risk dimensions.

And my magic formula is exactly about this: selecting reasonably priced Wide moat + GARP stocks. As confirmation, backtesting performed over the last year delivered significant alpha. That is why I am confident that 10 stocks selected with my magic formula can deliver long-term alpha. Even if not, I will still enjoy doing research and sharing my work with you.

Now, back to the current portfolio.

Transactions

➖ Realised gains on EGBN, PNDORA, PYPL, CLSK.

➕ Proceeds were partially reinvested into BIL.

Stress test

If S&P500 collapses by 50%, our portfolio is expected to drop by 27%.

Holdings as of 07/08/2026

• BIL 14%

• PRAB 12%

• Cash 9%

• SHY 7%

• FTSL 4%

• BKLN 4%

• IEI 3%

• USMV 3%

• SPHD 3%

• ADBE 3%

• LQD 3%

• EVO 3%

• MBIN 3%

• NVO 3%

• VGT 3%

• Other 26%

Breakdown by sector/asset class

• Cash and equivalents – 42%

• Bonds ETF – 14%

• Technology – 12%

• Financials – 8%

• Consumer Cyclical – 7%

• Low volatility ETF – 7%

• Industrials – 4%

• Healthcare – 4%

• Communication Services – 2%

That’s it for July.

See you in the next post.

Today I would like to share my intrinsic value for ASML Holding N.V., leader in lithography systems for manufacturing semiconductors with 90% market share.

Key assumptions:

• Explicit average 5Y/5Y growth @ 15.6%/7.3%

• Long-term growth in perpetuity @ 2.6%

• Starting Adj. EBITDA Margin @40% gradually improving to 49% by Y10

• WACC @ 9.7%.

• Adj. EBITDA exit multiple of 12.7

• Tax rate 18% - in line with historical average

• The input that drives reinvestment is forward-looking Sales to Capital ratio = 2.11

Historical growth rate (for context)

Historically, ASML has been an exceptional compounder: revenue increased from about €6.9bn in 2016 to €32.7bn in 2025, representing a CAGR of roughly 19%. Growth accelerated with the commercial adoption of EUV lithography, despite semiconductor-cycle volatility and export restrictions. Most recently, revenue increased 15.6% in 2025, driven by AI-related advanced Logic and Memory investment, EUV demand and a rapidly expanding installed-base service business. Historical 19% growth rate provides useful context, but ASML’s much larger revenue base makes some moderation in long-term growth a reasonable DCF assumption. That is why I am using a more grounded 15.6% rate within the first 5-year range and 7.3% subsequently until 2035.

Moat

Market participants unilaterally assign ASML a wide moat rating, supported by proprietary, hard-to-replicate EUV technology and a capital-intensive, specialized market structure that creates durable barriers to entry and strong customer lock-in.

Verdict

Shares are priced for perfection and do not represent an attractive entry point, in my view.

Follow my Substack for regular actionable investing frameworks, incl. a more detailed DCF.

Key assumptions:

• Explicit average 5Y/5Y growth @ 33.6%/3.3%

• Long-term growth in perpetuity @ 2.5%

• Record high 70-80% EBITDA Margin but fading towards more reasonable long-term range in Y10

• WACC @ 12%

• Adj. EBITDA exit multiple of 8.8

• Tax rate 15% - in line with OECD’s Pillar 2 “Global Minimum Tax”

• The input that drives reinvestment in Y3 onwards is the most recent Sales to Capital ratio = 0.9, in line with the Semiconductor average rate, with much higher rate in Y1 and Y2 due to tailwind

Why is Micron down 30% from its peak?

The simplest answer is that Micron’s results are excellent, but expectations became even more extreme.

Memory stocks are not valued only on current earnings. They are valued on what investors think supply, pricing and utilization will look like several years ahead. When spot prices, contract prices and margins approach record territory, the market immediately begins looking for the next supply response. That is the uncomfortable feature of commodity-like semiconductor cycles: the best reported numbers can coincide with the moment investors start worrying about peak earnings.

Four concerns appear to be driving the correction.

First, investors are taking profits after an extraordinary run. A sharp correction does not require collapsing fundamentals; it only requires expectations to stop accelerating.

Second, the market is worried about future industry capacity. Samsung, SK Hynix and Micron are investing heavily, while China’s CXMT is expanding its DRAM presence. The key risk is whether capacity added in response to today’s shortage produces excess supply in 2027 or 2028.

Third, AI capital expenditure has become a crowded assumption. Any sign of slower data-centre deployment can hit memory suppliers disproportionately because their operating leverage works in both directions.

Finally, current profitability is clearly above a normalized level. Micron reported a 74.4% GAAP gross margin in fiscal Q2 2026 and guided to approximately 81% for Q3. Those are astonishing economics for a historically cyclical manufacturer. The market is not questioning whether they are real; it is questioning how long they can last. That distinction matters enormously in a DCF.

Forward growth rate

As always, my model uses a ten-year explicit forecast split into two stages.

During the first five years, average explicit revenue growth is 33.6%. This figure is heavily front-loaded: I model revenue growth of 70% in Year 1 and Year 2, 20% in Year 3, and 4% in Years 4 and 5. The shape matters more than the average. I am not assuming Micron compounds at 33.6% in a smooth line; instead, I am modelling a powerful shortage-and-pricing cycle followed by rapid normalization.

For Years 6–10, average growth falls to 3.3%, with annual growth fading from 3.75% to 2.75%. My perpetual growth rate is 2.5%, which is broadly consistent with a mature global business growing around long-run nominal economic output. I do not give Micron perpetual AI-like growth.

My revenue forecast rises from a base of $90.3 billion to $153.5 billion in Year 1, $260.9 billion in Year 2, and $313.1 billion in Year 3. After that, the curve flattens materially, reaching $338.6 billion in Year 5 and $397.3 billion in Year 10. Keep in mind, those are not calendar years or reporting years. Timespan is a year from today based on twelve trailing month (TTM), since we are already in the middle of 2026. Instead of adjusting for mid-year Convention, I am just utilizing forward 12 months values.

This forecast assumes that AI changes the size of the memory profit pool, not that it abolishes cyclicality. HBM consumes substantially more wafer capacity per bit than conventional DRAM and requires advanced packaging, thermal management and tight integration with accelerators. That can keep effective supply tighter than headline wafer additions suggest. At the same time, large customers will qualify alternative suppliers, suppliers will improve yields, and capital will chase high returns. My fade period is designed to capture both realities.

EBITDA to FCF bridge

The model begins with an adjusted EBITDA margin of 78.7%. It peaks at 81.7% in Year 2, in line with exceptional near-term memory conditions, then falls to 78.7% in Year 3, 73.7% in Year 4, and 67.7% in Year 5. By Year 6, I reduce it to 62.7% and hold it there through Year 10.

This is one of the most important choices in my valuation. HBM has better pricing, greater technical complexity and tighter customer qualification than conventional memory. It can structurally improve Micron’s mix. But no serious long-duration model should capitalize an 80% margin forever in an industry where supply additions, node transitions and customer bargaining power eventually restore competition.

EBITDA is not cash flow, particularly for a semiconductor manufacturer.

My bridge begins with adjusted EBITDA, then deducts maintenance capital expenditure to estimate EBIT. In Year 1, adjusted EBITDA of $120.8 billion becomes EBIT of $109.7 billion after $11.2 billion of maintenance capex. Applying the 15.16% tax rate produces NOPAT of $93.1 billion.

I then deduct growth reinvestment of $54.1 billion, resulting in unlevered free cash flow of $39.0 billion. In Year 2, the same bridge produces $168.3 billion of NOPAT, $42.8 billion of reinvestment, and $125.5 billion of free cash flow. By Year 10, normalized adjusted EBITDA of $249.3 billion translates into $172.0 billion of NOPAT and $161.0 billion of free cash flow.

From Year 3 onward, my growth-reinvestment input is a 0.9× sales-to-capital ratio, broadly in line with the semiconductor industry average. In other words, each additional dollar of revenue requires roughly $1.11 of incremental invested capital. I use higher ratios in Years 1 and 2: 1.99× and 1.22×, respectively, because pricing and utilization create an unusually powerful revenue tailwind before the full capital bill arrives. From Year 3, I normalize the ratio to 0.9× and keep it there.

Across the explicit period, the present value of forecast free cash flows is $757.3 billion. The terminal value contributes the balance, which is why the margin fade, reinvestment rate and discount rate matter far more than a single year of headline EPS.

WACC

I use a 12% WACC. My cost of equity is 12.04%, based on a 4.41% risk-free rate, a normalized beta of 1.66 and a 4.60% equity risk premium. The after-tax cost of debt is 4.30%, but debt represents only 0.7% of enterprise financing in my calculation, so Micron’s WACC is effectively its cost of equity. The high discount rate is intentional: it reflects both the stock’s volatility and the uncertainty of forecasting cash flows through a memory cycle.

Tax rate

I apply a 15.16% tax rate during the first five forecast years, close to the OECD Pillar Two 15% global minimum tax framework. My detailed table then moves to 17.16% in Years 6–10, adding some conservatism as the business normalizes and the benefit from current geographic and tax arrangements becomes less certain.

For my terminal value, I use an average from two methods. The perpetual-growth approach produces $1,102 per share, while an 8.8× adjusted EBITDA exit multiple produces $1,321 per share. I average the two outcomes rather than allowing either terminal method to dominate the conclusion. That gives me my final target of $1,212.

Does Micron have an economic moat?

General analysts’ consensus is that Micron has no durable economic moat, although it possesses some competitive strengths. The company operates at the technological frontier, benefits from immense barriers to entry, has qualified relationships with major customers and is one of only three scaled global DRAM producers. HBM also creates stickier design and qualification cycles than standard memory. However, a moat should protect returns on capital across a full cycle. Micron still sells products exposed to industry supply, pricing and utilization; customers can dual-source and rivals can respond with capacity and process improvements. The industry is concentrated, but concentrated does not automatically mean protected. I therefore refuse to value peak returns as permanently defensible.

Base case

CompoundingLab price target for Micron is $1,212, compared with the current price of $886. That represents 37% upside to fair value, or equivalently a 27% margin of safety measured as 1 minus price divided by fair value.

Several things could make the base case work:

- HBM remains structurally undersupplied. AI accelerators require increasing memory bandwidth and HBM content per system, supporting both volumes and pricing.

- Micron gains share at the high end. Successful execution in HBM and leading-edge DRAM could narrow the gap with larger competitors and improve product mix.

- Wafer-capacity intensity stays elevated. HBM’s larger die footprint and packaging complexity limit effective bit-supply growth even when nominal fab capacity expands.

- Hyperscaler spending remains resilient. Continued investment in training and inference infrastructure can extend the demand cycle beyond what a traditional memory upturn would support.

- Capital discipline survives the boom. If the three major suppliers prioritize returns over market share, the industry may avoid the most destructive form of oversupply.

- Micron converts peak profits into balance-sheet strength. The company already has net cash in my model. Strong free cash flow can fund investment without materially diluting equity holders or increasing financial risk.

None of these outcomes requires the 80% margin to last forever. My base case already assumes a decline to 62.7% by Year 6. The thesis needs the current supercycle to be large and durable enough, not necessarily permanent.

Sensitivity: where the valuation breaks

For prudence purposes, I am sharing my sensitivity workings so readers can choose their own assumptions rather than simply accepting mine.

My bear case uses 28.0% Stage 1 growth, 2.7% Stage 2 growth, a 1.5% perpetual growth rate and a 13% discount rate. It produces a fair value of $639, 28% below the current price and equivalent to approximately -10% annualized downside if realized over three years.

My bull case uses 38.6% Stage 1 growth, 3.7% Stage 2 growth, a 3.5% perpetual growth rate and an 11% discount rate. It produces $1,875 per share, or 112% upside and approximately 28% annualized appreciation over three years.

Across perpetual growth rates of 1%–4% and discount rates of 10.5%–13.5%, estimated value ranges from $1,071 to $1,388. In the central zone (11.5%–12.5% WACC and 2%–3% perpetual growth) the result is $1,161–$1,266. The $1,212 base case is not an isolated outcome.

Verdict

But valuation is not the only input in my investment process.

Micron remains a deeply cyclical, capital-intensive business without a durable economic moat. Its current profitability is exceptional, but exceptional margins attract capacity, competition and customer resistance. Small changes in long-run pricing or utilization can produce large changes in free cash flow, even when end-market demand remains healthy.

For that reason, I am not willing to step in at this stage, despite the apparent discount. I would rather miss some upside than underwrite peak-cycle economics in a business whose competitive structure has historically made those economics temporary.

This is my personal valuation work, not financial advice. Keep in mind that this is an estimate - just like any DCF model. I’m not claiming perfection, but I do trust these calculations to assist with my own investments. Hopefully, they can help inform yours as well. Look at it as a thinking tool, not necessarily as a stock-picking tool. If you choose to share it online, please credit my page as the source.

Follow my Substack for regular actionable investing frameworks, incl. a more detailed DCF.

Key assumptions:

• Explicit average growth @ 4.7%

• Long-term growth in perpetuity @ 2.5%

• Normalized EBITDA Margin 22.8%

• WACC @ 8.4%

• Adj. EBITDA exit multiple of 7.1

• Tax rate 30% - in line with historical average

• The input that drives reinvestment is the most recent Sales to Capital ratio = 1.72, linearly regressed to the Apparel average rate of 1.28 in year 10.

Historical and Forward growth rate

Lululemon’s historical revenue growth has been exceptional but is slowing sharply: sales increased from approximately $2.1 billion in FY2015 to $11.1 billion in FY2025, an impressive 18.3% ten-year CAGR. Annual growth decelerated from 42% in FY2021 to 30% in FY2022, 19% in FY2023, 10% in FY2024 and 5% in FY2025. For FY2026, management currently guides to revenue of $11.0–$11.15 billion, representing flat to a 1% decline, while analyst consensus expects approximately 3% growth in FY2027. For my DCF, a reasonable base case would assume a gradual recovery toward 4% annual revenue growth, supported by international expansion and before fading toward a 2.5% mature growth rate. Continued weakness in the Americas remains the principal downside risk.

EBITDA to NOPAT bridge

Margin improvement over five to ten years is plausible as a turnaround assumption, but it is not presently reflected in consensus forecasts. For a base-case DCF, a 22.8% normalized EBITDA margin looks reasonable, as using anything higher would require a strong bull-case recovery.

Moat

Despite challenges in apparel market, analysts generally assign narrow moat rating to Lululemon. My ROIC figure and terminal growth calculation reflect this.

Base case

CL price target for LULU is 172. Valuation suggests that the stock is trading at 33% discount to fair value. If adjusted to FV within 3 years, it will generate 14% in annual alpha.

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Verdict

Hold. There is still an appealing discount in Lululemon stock. I have 1.5% of my portfolio in LULU, and I am not selling, but not buying more either.

Keep in mind that this is an estimate - just like any DCF model. I’m not claiming perfection, but I do trust these calculations to assist with my own investments. Hopefully, they can help inform yours as well. If you choose to share it online, please credit my page as the source. Look at it as a thinking tool, not necessarily as a stock-picking tool.

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Disclaimer: This post is for informational and educational purposes only. I own shares in LULU and can buy/sell them at any time after this post is published. Not financial advice. Do your own research.