DAILY JOURNAL CORP (DJCO) stock intrinsic value fair value estimate & owner earnings analysis

Daily Journal is really two things bolted together, and they have to be valued separately. The operating side is a small California and Arizona legal-newspaper publisher in slow secular decline, paired with Journal Technologies, which sells case-management software to courts, prosecutors, public defenders and other justice agencies in roughly 37 states plus Australia and Canada. Software is now about 80% of revenue. The other side is a concentrated portfolio of marketable securities worth about $406 million at the end of June 2026, financed partly by a $22 million margin loan and carrying a large deferred tax bill on unrealized gains. Operating owner earnings have gone from deeply negative to genuinely positive. Through 2020 the operating businesses lost money every single year, as much as $18 million in 2019, because Journal Technologies expenses all of its software development as it is incurred while installation revenue is only recognized when projects go live. Since then owner earnings have run $1.47 a share in 2021, $1.31 in 2022, $3.69 in 2023, $2.33 in 2024 and $5.26 in 2025, with the first nine months of 2026 tracking well ahead of the prior year. Consolidated revenue grew from about $50 million in 2020 to $87.7 million in 2025. The improvement is real but lumpy, since consulting revenue lands when installations finish, and the publishing side actually lost a little money in 2025. We deliberately keep the stock portfolio out of the earnings stream. Reported profit swings violently with market marks, a $112 million profit in 2025 and a $53 million loss in the first nine months of 2026, and none of that tells you anything about the business. So we capitalize only the operating earnings and then add the portfolio at market, less the margin borrowing and the taxes that would come due on the gains. The bear case assumes operating earnings fall back toward the roughly $3.5 million level seen as recently as 2024, capitalized at 12% with no growth, and marks the portfolio 15% below today's quotes, giving about $230 a share. The base case assumes about $7.5 million of operating owner earnings growing 5% for a decade, discounted at 9.5%, plus the portfolio at market net of the full deferred tax, about $349. The bull case assumes $9.5 million growing 8%, discounted at 8.5%, and charges only part of the deferred tax because the company almost never sells, about $458. We are perhaps 65% to 70% confident in the base case. Most of the value is the portfolio, which is verifiable but concentrated and can fall 20% to 30% in a year, as it did when it dropped about $87 million in nine months. The company also disclosed a material weakness in its internal financial controls, holds no earnings calls and discloses sparingly. That argues for a wide margin of safety, so the margin-of-safety price is around $215 a share, below even our bear estimate, a level that values the securities at a discount and assigns no value to the operating businesses.