$57.17
$110.24
bear $57.17
base $93.89
bull $110.24
margin of safety $52.00
market price* $100.16
Franklin Electric makes and sells pumps, motors and related systems for moving and treating water and fuel. In 2025 it had net sales of $2.13 billion across three segments: Water Systems (submersible motors and pumps, groundwater and surface pumps, large dewatering equipment and water treatment products, $1.26 billion of segment sales including sales to its own Distribution arm), Distribution (a U.S. and Canada distribution network selling water systems, $701 million) and Energy Systems (fueling systems, led by fuel pumping equipment, $299 million). About 72% of sales come from the United States and Canada. No customer accounts for more than 10% of sales. The business has a long record of profitability and steady dividends, and much of its demand is replacement of pumps and motors already installed in wells, water systems and fueling stations. How we measured earnings. We start from cash generated by operations, remove the swings caused by receivables, inventory, payables and income taxes, and subtract stock-based compensation and the part of capital spending needed just to keep the business running (spending to support growth is not charged). Stripping out those swings matters here: in 2021 and 2022 the company absorbed about $227 million of cash building inventory and receivables, and in 2023 it released $43 million of it, so reported operating cash flow ran from $102 million to $316 million with no change in the underlying business. On this basis owner earnings per share were $3.52 (2021), $4.60 (2022), $4.73 (2023), $3.93 (2024) and $4.74 (2025). Because debt is valued separately below, we add back the interest the company pays to get the cash the business itself produces before its lenders: $3.63, $4.84, $4.99, $4.07 and $4.95 per share for the same five years. The 2025 reported earnings include a $54.9 million ($41.5 million after tax) non-cash charge from settling the U.S. pension plan; it does not touch cash flow and is not treated as a cost. Amortization of acquired intangibles (about $24 million in 2025) is also non-cash and is added back; we handle the fact that acquired assets wear out by keeping the growth we credit well below what the company has delivered. One line, other operating items of $15.8 million in 2025, is not explained in the parts of the filing we checked; we left it in earnings rather than assume it away. Starting point. We use the median of 2021 through 2025, or $4.84 per share. The window starts in 2021 because the company that year roughly a third larger in sales after a $236 million acquisition spree and repriced its products; 2016 to 2020 describes a business with sales of $0.9 to $1.3 billion. Per-share owner earnings rose 20.6% in 2025 ($3.93 to $4.74) as 2024's dip reversed; the base case assumes just 3% for the first year, which is below that recent pace, so no reason for a faster rebound is needed. The company bought back $165.6 million of stock in 2025, funded from cash on hand (down from $220.5 million to $99.7 million) and more borrowing, so the roughly 44.5 million diluted shares today are below the 45.5 to 47.0 million used in earlier years; a starting point measured on the older, larger share counts is slightly conservative. Debt. At March 31, 2026 the company owed $224.2 million ($89.8 million due within a year and $134.4 million long term) and held $80.4 million of cash, most of it in foreign subsidiaries. Adding $4.5 million for outside owners of partly owned subsidiaries, the claims ahead of shareholders are about $148 million, or $3.33 per share. That balance date is the seasonal high point for borrowing (operating cash flow was negative $40.9 million in the quarter versus negative $19.5 million a year earlier, and we could not trace the extra outflow from the data available), so the figure is on the cautious side. The long-term notes carry about 5.0% and are due in September 2032; the bank facilities and note shelf agreements run to May 2027 and are expected to be renewed. Loan covenants allow leverage up to 3.5 times and require interest coverage of at least 3.0 times; even in our bear case the business produces about $171 million a year against roughly $10 million of interest, so leverage is not a threat to shareholders in any case. Because the cost of this debt is close to 6%, no adjustment was made for cheap or expensive borrowing. Bear case: $57.17 per share (business worth $60.50 per share, less $3.33 owed). We assume the business cash flow drops to $3.63 per share, the lowest of the last five years, about 25% below our starting point, and never grows again. Named reasons: in 2024 per-share owner earnings fell 18% even though sales fell only 2%; U.S. tariffs on steel, aluminum and imports are raising costs (the first quarter of 2026 gross margin was 35.0% versus 36.0% a year earlier); and about 10% of sales are in Latin America, where the annual report cites currency devaluation in Argentina and Brazil (and Turkey elsewhere). We credit no growth, no new products and no share gains. Because installed pumps and motors keep needing replacement, we do allow the earnings that remain to persist rather than fade. About 56% of this case's value comes from years beyond the first ten. Base case: $93.89 per share (business worth $97.22 per share, less $3.33 owed). Cash flow grows 3% a year for five years and 2% a year for the next five, reaching about $6.19 per share, then stays level. The credited growth is the continuation of a process the company has run for years: cash-funded acquisitions (about $56 million in 2020, $236 million in 2021, $35 million in 2023, $115 million in 2025, including Barnes de Colombia and PumpEng, which added $48.9 million of 2025 sales) plus price realization, through a period that included 2020 and 2024. Business cash flow per share grew from about $1.96 in 2016 to $4.95 in 2025, well above the 3% we credit. Growth also needs working capital, and over 2016 to 2025 the company put about 15 cents into inventory and receivables for each extra dollar of sales; we deduct that from each growth year. Left out: the 9.9% first-quarter 2026 sales gain ($500.4 million versus $455.2 million), which is one quarter; expected savings from a restructuring approved in January 2026 (about $4 million of cost); any margin recovery; new products; and any market growth. About 60% of the base value lies beyond year 10, which is why we require a wide cushion. Bull case: $110.24 per share (business worth $113.57 per share, less $3.33 owed). We start from the 2025 level of $4.95 and assume growth of 5% for five years and 3.5% for five years, reaching about $7.50 per share, then level. This is what happens if the company keeps buying businesses at its recent pace and keeps pricing ahead of costs, both of which it has done, but at roughly half the pace of the past decade's per-share growth. We do not credit a market recovery or margin expansion. Checking the case. The load-bearing assumption is that pricing holds against tariff and input costs. Gross margin was 35.5% in both 2024 and 2025 despite tariff costs, and first-quarter 2026 operating income rose to $48.1 million from $44.1 million, so the assumption held so far. The first-quarter margin slipped one point, which if it lasted a full year would cost about $21 million before tax (roughly $0.35 to $0.40 per share after tax); that risk is carried in the bear case. What would make us wrong: lasting margin erosion, a deep multi-year downturn in housing, farm or construction demand, or debt-funded buybacks or acquisitions that earn less than they cost. Change since our last analysis. Our earlier estimate was $29 (bear), $57 (base) and $77 (bull). All three rise because we have changed how we value the company, not because the business changed: we now discount all future cash at a flat 6% rather than 10% to 11%, we value the business first and then subtract debt, and we remove working-capital swings that had made 2021 and 2022 look weaker. The earlier work also averaged ten years, which mixed in a smaller business. The margin-of-safety price rises from $34 to $52 for the same reasons; it is set about 9% below the bear case and about 45% below the base case because the business is cyclical, tariff costs are unresolved, and most of the value is in the distant future.