$32.30
$97.40
bear $32.30
base $75.60
bull $97.40
margin of safety $41.50
market price* $74.29
Cabot Corporation makes carbon black, the reinforcing filler that gives tires their strength and wear life, and also sells specialty carbons, fumed silica and battery materials. Fiscal 2025 sales of $3.71 billion split roughly 35% Americas, 38% Asia Pacific and 24% Europe, Middle East and Africa. Cabot sold its Purification Solutions (activated carbon) business in fiscal 2022, so fiscal 2023 onward describes the company as it exists today. HOW WE MEASURED EARNINGS. We start with cash from operations, remove the swings in receivables, inventories, payables and taxes payable (they reverse), subtract stock compensation as a real cost, and subtract only the part of capital spending needed to stand still. Spending to grow is estimated at Cabot's ten-year average of about 6.2% of revenue times the year's sales increase, and in years when sales fell all spending counts. We confirmed that fiscal 2025's cash flow statement ties to reported net income, depreciation, deferred taxes and the working-capital lines we removed. Owner earnings per share for fiscal 2016 through 2025 were $3.40, $4.05, $3.39, $1.65, -$0.09, $5.90, $6.38, $4.19, $6.60 and $5.90. Because we value the business before its lenders are paid and then subtract the debt, we add back cash interest ($79 million in fiscal 2025). That gives business cash flow per share of $4.21, $4.81, $4.16, $2.45, $0.76, $6.62, $7.19, $5.70, $8.08 and $7.36. Depreciation and amortization are added back automatically; intangible amortization is small (about $2 million a quarter), so no separate haircut was needed. THE STARTING POINT. We use $6.60 per share of business cash flow, the median of fiscal 2019 through 2025. That window spans the 2020 pandemic trough, the 2021-2022 rebound and the softer 2023 and 2025 years. The three years since the divestiture alone (median $7.36) contain no real recession, so we did not lean on them. Growth check: business cash flow per share fell about 9% in fiscal 2025 ($8.08 to $7.36). Our base case assumes 0% growth in year 1 from the $6.60 starting point, which already sits about 10% below fiscal 2025, so the decline is built into the level rather than expected to reverse. The first nine months of fiscal 2026 support this: after removing working-capital swings, operating cash flow less stock compensation and capital spending was about $218 million, and adding back interest expense of about $54 million gives roughly $272 million, or about $6.9 per share annualized at the current, lower capital spending pace, and about $5.6 if spending returned to fiscal 2025's pace. Third-quarter net income fell to $6 million from $101 million a year earlier, driven by a $46 million tax charge and a $42 million restructuring charge; nine-month restructuring is $57 million and the nine-month tax rate was about 43%. We could not identify the cause of the high tax charge from the interim data available, and we have not treated one quarter as changing the level. Third-quarter sales rose about 6% year over year. BASE CASE, $75.6 per share. Business cash flow stays flat at $6.60 per share indefinitely, giving a business value of $110.0 per share. We credit no growth. The evidence that the earnings keep coming is structural: every tire needs carbon black, and Cabot's business cash flow has been positive in each of the last ten years, including the 2020 trough. We left out battery materials and other new products, share gains, price increases and share buybacks (the diluted share count fell from about 65 million in fiscal 2014 to about 52 million, but whether buybacks add value depends on the price paid). Debt: at June 30, 2026 Cabot owed about $1.27 billion (short-term borrowings $184 million, current long-term debt $261 million, long-term debt $828 million) against $250 million of cash, of which we treat $100 million as needed to run the business. Net debt is about $1.12 billion, or $21.6 per share on 52.0 million diluted shares. Cash interest of about $79 million on roughly $1.1 billion of debt is close to 6%, so we made no cost-of-debt adjustment. Outside partners in majority-owned subsidiaries earn about $40 million to $45 million a year ($44 million in fiscal 2024, $45 million in fiscal 2025); we deduct their share at the same multiple, $12.8 per share. Result: $110.0 worth of business, less $21.6 of debt and $12.8 for minority partners, leaves $75.6. BEAR CASE, $32.3 per share. Cabot has already shown what a downturn looks like: business cash flow per share was $2.45 in fiscal 2019 and $0.76 in fiscal 2020. We assume $2.00 per share for two years, then a lasting reset to $4.00, the average of fiscal 2016 through 2019 ($3.9), flat thereafter. Business worth $63.0 per share, less $21.6 of net debt, $7.3 for minority partners and $1.8 for refinancing at about two points above today's cost on roughly $1.1 billion for five years, leaves $32.3. In the first two years business cash flow of about $104 million still covers interest of about $79 million, so the debt is serviceable. Things to watch: the 4.0% notes due in 2029, a revolving credit facility that expires in fiscal 2027, and an unresolved arbitration with the contractor Cabot terminated at its Ville Platte, Louisiana plant, where Cabot has filed a counterclaim. Cabot is installing emission controls under its settlement with the U.S. EPA and Louisiana; total cost is about $270 million, $241 million had been spent by September 30, 2025, and the remainder runs into early 2026. We did not add a specific cost for the arbitration because none is quantified in the filing. BULL CASE, $97.4 per share. Business cash flow per share returns to $8.08, the fiscal 2024 level reached after the divestiture, and stays there. The lever is visible now: capital spending for the first nine months of fiscal 2026 was $152 million against $210 million a year earlier as emission-control spending winds down. Business worth $134.7 per share, less $21.6 of net debt and $15.7 for minority partners, leaves $97.4. WHAT WOULD MAKE THIS ESTIMATE WRONG. A prolonged decline in tire demand or in carbon black pricing, competition from lower-cost Asian producers, further plant closures or compliance costs, or a persistently high tax rate would push results toward the bear case. Nine-month fiscal 2026 restructuring charges of $57 million suggest management is resizing capacity, which we have not credited as an improvement. CHANGE SINCE OUR LAST UPDATE. Our August 2026 estimates were bear $28.50, base $60.85 and bull $104.60. They used a higher discount rate and a simpler earnings measure. This update values the business before its lenders at 6%, removes working-capital swings, charges stock compensation, and subtracts debt and minority interests explicitly. The higher base and bear reflect that method, not new operating news; the lower bull reflects capping the upside at a level the business has actually reached (fiscal 2024). MARGIN-OF-SAFETY PRICE. The margin-of-safety price is near $41.50, about 45% below the base case and a little above the bear case, because Cabot is a cyclical, leveraged business whose earnings have swung widely.