Atmus Filtration Technologies Inc. (ATMU) stock intrinsic value fair value estimate & owner earnings analysis

Atmus Filtration Technologies makes engine and vehicle filters (oil, fuel, air and hydraulic) under the Fleetguard brand, mainly for heavy-duty trucks, off-highway and industrial engines. About 86% of 2025 sales came from replacement parts sold into the installed base of engines already in service, and only about 14% from parts fitted to new engines. Replacement filters are bought again and again, which is why the business has kept growing through the recent truck downturn: net sales rose from $1,439M in 2021 to $1,764M in 2025 (about 5% a year). Almost all sales are for internal-combustion engines. Customers are concentrated: Cummins (its former parent) was 18.8% of 2025 sales, PACCAR 16.3% and the Traton Group 11.5%, roughly 47% together, and the supply agreements with Cummins do not commit any specific volume. What the business earns. We measure the cash left for owners after capital spending needed to stay in business and after stock compensation, and we set aside the swings from working capital (receivables, inventories, payables) so timing does not distort the picture. Those swings were large: cash tied up in working capital was about $103M in 2024 and $63M in 2025, so reported operating cash flow ($105M in 2024, $203M in 2025) understates the underlying earning power. On this basis, owner earnings per share were about $1.52 (2023), $1.79 (2024) and $2.44 (2025). The company was carved out of Cummins in 2023 and carries debt, so we also add back interest to see what the business produces before its lenders are paid: about $152M in 2023, $190M in 2024 and $236M in 2025 (interest expense was $25.8M, $40.6M and $33.4M; the cash interest actually paid is not separately disclosed, so interest expense is used). We use 2024 and 2025 as the representative window, about $213M a year. 2023 is excluded because it was the separation and listing year, with only a part-year of stock compensation and new debt, and the earlier carve-out years carried no stock compensation or standalone costs. Owner earnings grew 24% in 2025; our base case assumes 4% in the first year, well below that, because part of 2025 came from catching up after a 2024 that was held back by inventory and payables movements, not from a repeatable step change. The Koch Filter acquisition and the debt. On January 7, 2026 Atmus bought Koch Filter Corporation, a U.S. maker of air filtration for commercial HVAC, data centers and power generation, for about $450M in cash, funded by a new $1.0B term loan (SOFR plus 1.125% to 1.75%, maturing January 2031, amortizing 2.5% a year from early 2027 and 5% a year later) and a $500M revolver. The earlier $570M term loan was repaid. At June 30, 2026 the company owed about $1,000M and held $259M of cash. We count $60M of that cash as needed to run the business, treat the rest as available, add $2M of finance leases, and reduce the debt by about $20M because it currently costs about 5.5% a year, a little under 6%. That gives net debt of about $783M, or roughly $9.55 per share (82.0M diluted shares). Koch's earnings are not in the past owner-earnings record, so we estimated its contribution from the change in reported operating income in the first half of 2026 ($173.5M versus $146.6M, with sales up $135M): about $35M a year of cash earnings after tax in the base case, flat with no growth credited. We could not read the underlying half-year filing text, so this is an estimate and is the least certain input. Bear case: $15.4 per share. The business is worth about $25.0 per share and owes about $9.6, leaving $15.4. It assumes owner earnings stay at the weaker end of recent results (about $190M from the legacy business, plus $28M from Koch) with no growth for ten years, then decline steadily to zero over the following ten years as internal-combustion filtration is gradually displaced. The named risks are the 47% concentration in three OEM customers with no committed volumes, the reliance on replacement demand for internal-combustion engines, and the leverage. Even here the business produces about four times its roughly $55M annual interest bill, and the term loan does not mature until 2031, so we do not see a refinancing problem in the bear case. Base case: $37.4 per share. The business is worth about $46.9 per share and owes about $9.6, leaving $37.4. It starts from $213M of legacy owner earnings plus $35M from Koch, and credits growth only from what the business has already shown: 5% a year sales growth since 2021 through a truck downturn, driven by a 86% replacement-parts mix and an installed base of engines that already exists. We credit 4% a year for the first three years, tapering to 2% by year ten, then hold earnings flat for ten more years (diesel engines in service last well beyond ten years) and fade to zero over the following ten. We give no credit for market expansion, share gains, new products, margin expansion or Koch synergies. Bull case: $51.1 per share. The business is worth about $60.7 per share and owes about $9.6, leaving $51.1. It starts from 2025's actual level ($236M) plus $42M from Koch (if legacy growth in the first half was lower than we assume), grows at the demonstrated 5% a year for five years, then tapers to 2% by year ten, holds flat until year twenty-five and fades over ten years. It does not assume margin gains or new markets. What would make this wrong. Loss or sharp reduction of business with Cummins, PACCAR or Traton; faster electrification of heavy-duty vehicles than the long lives of diesel fleets imply; Koch earning materially less than the estimate above; or the new term loan being repriced at much higher rates. The company also recorded an $8.4M write-down of idled equipment in 2025 and now carries $302.6M of goodwill after the Koch deal; a large write-down would not change cash earnings but would show the acquisition did not earn its price. Margin-of-safety price. The margin-of-safety price is about $24 per share: roughly 36% below our base value and about 55% above the bear value, a margin of safety we consider appropriate for a stable replacement-parts business that is now more leveraged and customer-concentrated.