DONALDSON Co INC (DCI) stock intrinsic value fair value estimate & owner earnings analysis

Donaldson designs and sells filters and filtration systems. Mobile Solutions (62% of fiscal 2025 sales of $3,691M) covers off-road equipment, on-road trucks and an Aftermarket unit that sells replacement filters for engines and equipment already in service. Aftermarket sales were $1,821M in fiscal 2025 (about 49% of the company total), up 5.2%. Industrial Solutions (30%) sells industrial air filtration, gas, hydraulic, power generation and aerospace and defense products. Life Sciences (8%) serves food and beverage, disk drives, vehicle electrification and medical devices, microelectronics and bioprocessing. About 44% of sales are in North America and about 28% in Europe, the Middle East and Africa. How we measure earnings. We start from cash generated by operations, remove swings in receivables, inventory and payables, subtract stock compensation as a real cost, and subtract only the capital spending needed to maintain the business (the portion of spending tied to growth is excluded). Per diluted share this gives $1.49, $1.80, $1.12, $1.55, $1.90, $2.68, $2.92, $2.65, $3.32 and $3.48 for fiscal 2016 through 2025. Because we value the business first and then subtract its debt, we add back cash interest (about $22M in fiscal 2025), which gives $3.51 for fiscal 2024 and $3.67 for fiscal 2025. Non-cash charges are added back automatically; the largest recent one is the $62.0M fiscal 2025 write-down of bioprocessing intangibles ($46.6M of it for Univercells Technologies). We give Life Sciences no growth credit for that reason. The fiscal 2022 working-capital build of about $204M (inventory and receivables rising as sales grew about 16%) is treated as timing and removed. For fiscal 2023 to 2025 we rebuilt the cash figure from net earnings, depreciation and other non-cash items and it matched. Starting level. We use the median of fiscal 2021 to 2025, $3.01 per share (about $355M a year before interest), because that period contains both the supply-chain boom and the softer equipment demand of fiscal 2024 and 2025. The last two years were higher ($3.51 and $3.67), and the first nine months of fiscal 2026 (to April 30, 2026) show operating cash flow of $293.8M against $251.0M a year earlier, lower capital spending ($52.5M against $60.3M) and net earnings of $324.5M against $252.7M (the prior year carried the write-down). That supports the level but is not enough to lift it, so we did not. The fiscal 2026 annual report was not yet in the filings we used. Growth check: fiscal 2025 per-share growth was 4.8% on our earnings measure and 4.6% before interest; the base case assumes 4.0% in year one, at or below that pace. Base case: $62.83 per share. The business produces $3.01 per share growing 4% a year for five years and 3% a year for the next five, then flat. What is in the bag: replacement-filter demand from a large installed base of engines and equipment (Aftermarket grew 5.2% in fiscal 2025), and a record of sales growth of 4.4% a year over the six years to fiscal 2025 and 5.8% a year over nine. We credit less than those rates and taper them. After year ten we assume the replacement mechanism keeps the level going but add no growth. We leave out data-center or other new-market growth, a Life Sciences recovery, margin gains and acquisitions, because nothing signed or already under way supports them. The business is worth about $66.29 per share (about $7.8B); net debt is about $3.46 per share (about $409M); that leaves about $62.83. Bear case: $33.20 per share. Off-road and on-road equipment demand turns down and stays down: sales fell about 9% in fiscal 2020 and earnings per share on this measure were $2.04 that year. We assume $2.20 per share (about $260M), 27% below the starting level and 40% below fiscal 2025, with no growth and no recovery credited. That sits between the fiscal 2020 level and the ten-year median of $2.41. The business is worth about $36.67 per share (about $4.3B), it owes about $3.46, leaving about $33.20. Cash of roughly $260M a year covers cash interest of about $22M many times over, so debt does not force a restructuring in this case. Bull case: $83.94 per share. The business holds the fiscal 2025 level of $3.67, which was reached in fiscal 2025 and is corroborated by nine months of fiscal 2026, and grows 5% a year for five years and 4% for five more, roughly the recent Aftermarket pace and below the nine-year sales record, then flat. The business is worth about $87.41 per share (about $10.3B), it owes about $3.46, leaving about $83.94. Debt. At July 31, 2025 borrowings were $640M: $50M of 2.12% notes due November 2028, $125M of 3.18% notes due June 2030, $100M of 2.50% notes due August 2031, a $200M variable-rate term loan due June 2028 (5.57% at year end), $60M drawn on the $600M revolving facility (extended to June 2030 during fiscal 2025), and a term loan of about $92M due March 2029 plus two small term loans. At April 30, 2026 cash was $204.1M and short-term borrowings $10.3M, so net debt was about $446M. Because $275M of the notes are fixed at rates well below 6% for three to six years, the present value of that saving is about $37M, and we lowered net debt to about $409M. The $200M term loan maturing in June 2028 is small against roughly $400M or more of annual cash generation and is refinanceable in every case. What would make this wrong. Donaldson lists electrification of equipment as a risk to diesel-related filter demand. Today Aftermarket sales are still rising, so we do not model a decline, but faster displacement would undercut the no-growth-forever assumption after year ten. A deeper or longer equipment downturn than fiscal 2020 would also push results below the bear case. Change since our last analysis. The August 2026 analysis showed $17.85, $37.60 and $50.50 for bear, base and bull. The increase is mainly a change in method: we now discount every company at a uniform 6% required return and value the business before subtracting debt, where the earlier work used 10% to 11%. The near-term picture is little changed and the long-run growth assumption is lower (no growth after year ten, against 2.5% before).