$172.00
$303.90
bear $172.00
base $228.74
bull $303.90
margin of safety $145.00
market price* $150.66
Alamo Group (Seguin, Texas) makes equipment that keeps roads, farms, utilities and land maintained, in two divisions. Industrial Equipment builds vacuum and excavator trucks, street sweepers, snow-removal equipment and, since January 26, 2026, Petersen truck-mounted grapple loaders, sold mainly to municipalities, utilities and contractors. Vegetation Management builds mowers, tree-care, forestry and land-clearing equipment (Bush Hog, Tiger, McConnel, and the Morbark chipper and grinder line bought in 2019), sold mainly to farmers, ranchers and tree-care and forestry operators. Alamo has grown for decades by buying niche equipment makers one or two at a time and paying for them from its own cash flow (Morbark 2019, Royal Truck 2023, Ring-O-Matic 2025, Petersen 2026), and none of those purchases has led to a goodwill write-off in recent years. The two divisions are moving in opposite directions. In 2025 Industrial Equipment sales rose about 13% as municipalities and utilities kept replacing aging fleets. Vegetation Management sales fell as high interest rates and weak farm, housing and construction activity cut demand, and costs from closing and combining plants made it worse. That division's order backlog rose 6% by year end, but its operating income kept falling in the first half of 2026, from $26.1 million to $19.4 million. Company sales rose 7% in the first half of 2026, mostly because of Petersen, while net income slipped from $62.9 million to $60.1 million. The underlying business has not yet turned. How we measure earnings: we start from cash generated by operations, strip out swings in receivables, inventory and payables, and subtract stock compensation and the capital spending needed to keep the plants running. Alamo also rents out equipment, and it runs purchases of rental units through operating cash flow. We treat replacing worn-out rental units as an ongoing cost, equal to the depreciation on that fleet (about $11.7 million in 2025). About $16.5 million a year of amortization on acquired brands and customer relationships is added back because it is a non-cash charge. Brands like Bush Hog and McConnel have kept selling for decades after Alamo bought them, so we do not treat them as wasting away. Even so, the base case credits no growth after 2035. We value the business before its interest bill and then subtract what it owes. On that basis the business produced about $11.63 per share in 2025, down 8% from $12.71 in 2024. For 2020-2025 the median is about $11.11 per share, which we treat as the normal level. Those six years are the period since Morbark and cover the 2020 pandemic dip, the 2021-2023 boom and the current Vegetation Management slump. Alamo paid $166.5 million for Petersen ($162.9 million net of cash acquired). Petersen's results are not reported separately, so we estimate its contribution at about $12 million a year after tax and capital spending (about $1.00 per share). That assumes the price bought a mid-to-high single-digit after-tax cash yield, typical of Alamo's past purchases. Debt: at June 30, 2026 Alamo owed about $262.7 million, a $200.2 million term loan plus $62.5 million drawn on its revolving credit line. Both sit under a credit agreement signed in May 2026 that runs to May 2031 at floating rates of 1.25%-2.25% over short-term benchmark rates. It held $195.0 million of cash. We treat about $45 million of that as needed to run the business, which leaves net debt of about $112.7 million, or $9.30 per share. The borrowing cost is close to a normal long-term rate, so we made no adjustment for it. Interest of roughly $15-20 million a year is covered many times over in every case, so the 2031 maturity is not a pressure point. Base case: the core business earns about 8.5% less in 2026 than in 2025, the same rate of decline as last year and in line with the first half's falling Vegetation Management profit. In 2027 it returns to its 2020-2025 normal of about $11.11 per share, a level it has already reached under current conditions, helped by the backlog built in late 2025. Including Petersen, earnings are about $12.11 per share in 2027. From 2028 to 2035 they grow 2% a year. That is below what Alamo has shown it can do through steady price increases and small acquisitions paid for from its own cash, and we credit no acquisitions it has not yet made. After 2035 earnings hold flat with no further growth. The business is worth about $238 per share (about $2.9 billion). Less $9.30 of net debt, the shares are worth about $229. Bear case: we model a downturn like 2008-2010 for farm, housing and construction equipment and for municipal budgets. Vegetation Management falls further and Industrial Equipment slides back from its strong 2025, as town and utility capital budgets tighten for two years. Core earnings drop to about $6.60 per share in 2028, roughly 40% below the recent normal, which is the size of the decline equipment makers like Alamo saw in 2009. Petersen earns about half our estimate at the trough. Earnings then recover only partly, to about $10.80 per share including Petersen, and stay flat forever. The business is worth about $181 per share (about $2.2 billion). Less $9.30 of net debt, the shares are worth about $172. Even at the trough, operating cash flow of more than $85 million a year covers interest several times, and debt is low against equity of $1.19 billion. Bull case: plant consolidation delivers its savings and Vegetation Management's backlog turns into a real recovery. Core earnings return by 2028 to about $12.90 per share, near the $13.05 already achieved in 2023, and Petersen performs a little above our estimate. Earnings then grow 3.5% a year through 2035, from pricing and Alamo's continued small acquisitions, and 1.5% a year for the following decade before holding flat. The business is worth about $313 per share (about $3.8 billion). Less $9.30 of net debt, the shares are worth about $304. What changed since our previous estimate: we now count replacement of the rental equipment fleet as an ongoing cost. That lowers the normal earnings level slightly, from about $11.66 to $11.11 per share. We also use Alamo's own stated $166.5 million purchase price as the basis for estimating Petersen's earnings. The bear case is now built around a full 2008-2010-style equipment and municipal-budget downturn rather than a milder slowdown. It reaches a deeper trough but recovers to a slightly higher level, so the bear value is little changed. The base value is about the same at $229, and the bull case is slightly lower. Margin-of-safety price: we are fairly confident of the earnings level. Alamo has produced roughly $8-13 per share in business cash flow in every year since 2020, the product lines are mature, and no single customer dominates. The worst plausible outcome is a long farm and housing slump at the same time as cuts to municipal and state road budgets. The business would survive it: debt is small, the 2031 loan maturity is distant, and much of what Alamo sells is replacement equipment that has to be bought eventually. If we are wrong about how fast Vegetation Management recovers, and about Petersen earning what Alamo paid for, the shares are worth roughly $170-180, the bear case. From about $145, even a three-year wait for the base case to be recognised implies close to 20% a year, including a dividend of about $1.36 a year that rises every year. A higher price would rely on a quick recovery that the first half of 2026 does not yet show. The margin-of-safety price is about $145 per share.