$146.92
$336.01
bear $146.92
base $238.47
bull $336.01
margin of safety $125.00
market price* $264.15
Kadant makes engineered equipment and, more importantly, the parts and consumables that wear out inside it: doctor blades, forming fabrics, showers and cleaning systems for paper machines, debarkers and knives for sawmills and wood processors, and fluid-handling components for mining, food and industrial plants. It reports three segments: Flow Control, Industrial Processing and Material Handling. In 2025 a record 71% of its $1.05 billion of revenue came from parts and consumables. That matters because customers keep buying them while their mills run, even when they put off new machines. What the business earns. We measure the cash an owner could take out each year: operating cash flow, with the year-to-year swings in receivables, inventory and customer deposits removed, less stock compensation and the capital spending needed to maintain the plant. On that basis Kadant earned $41 million in 2016, $87 million in 2020, $122 million in 2023, $153 million in 2024 and $149 million in 2025, which is $12.66 a share. Before interest the 2025 figure is about $164 million. These numbers tie exactly to net income plus depreciation, amortization and other non-cash charges. Amortization of acquired intangibles, about $28 million in 2025, is added back because it is a sunk acquisition cost. We treat the decay of those acquired customer relationships in the growth path and not by lowering the earnings level. The central fact is that the growth was mostly bought. Kadant spent about $1.02 billion on acquisitions from 2017 through 2025, close to everything its operations produced, and another $172 million in the first half of 2026. It also agreed in January 2026 to buy voestalpine BOHLER Profil, a maker of special profiles and industrial knives, for about 157 million euros. Revenue in 2025 was flat. Excluding acquisitions and currency it fell 4%, and capital equipment revenue fell 16% as sawmills curtailed on weak US housing, pulp and paper mills closed or merged, and customers in China and Europe postponed projects. Parts and consumables in Industrial Processing still grew 11%. Over nine years the record is consistent. The company buys niche industrial businesses for cash, often several a year, folds them into its global sales network, and has never had to raise equity to do it. Where we start. We anchor on the median of 2021 to 2025 before-interest owner earnings, about $14.70 a share or roughly $175 million on today's share count after the Clyde Industries acquisition (October 2025, $174 million). Earlier years describe a much smaller company. In 2025 owner earnings fell about 3%. Because capital equipment orders slipped into 2026 and the first half of 2026 showed little organic improvement, the base case starts year one below that, at about -5%, rather than assuming a rebound. Base case, about $238 a share. Earnings start near $180 million and fall 5% in year one. Organic growth then runs at 1% a year, roughly the long-run pace of a mature paper, wood and mining aftermarket. We credit acquisitions only as the proven, self-funded habit they are. Thirty cents of each dollar earned is reinvested in bolt-on deals returning 8% before interest, which is below what the record suggests and leaves a margin for deals that disappoint. We do not credit any recovery in capital equipment orders, because it has not yet happened. Earnings power keeps going after year ten because a large installed base of Kadant equipment keeps consuming blades, fabrics and spares for as long as those mills run, and no growth is assumed after year ten. The business is worth about $3.24 billion. After subtracting about $424 million of net debt (borrowings of $507 million under the revolving credit facility at July 2026 plus about $11 million owed to minority partners, less cash beyond working needs), owners are left with about $2.82 billion. Bear case, about $147 a share. The bear case assumes no organic growth and no more acquisitions, so it tests the business standing alone. It also runs one full industrial downturn of the kind Kadant actually lived through. In 2009 its revenue fell about 32% and capital orders collapsed. Here earnings drop to about 62% of normal in year two, recover over three years, and never exceed today's level. After year ten we fade earnings 3% a year to reflect mill closures in graphic paper and the wearing out of acquired customer relationships. The business is worth about $2.16 billion, less $424 million of net debt, leaving about $1.74 billion. At the trough, cash flow before interest of about $104 million still covers roughly $30 million of interest several times over. The leverage covenant of 3.75 times stood at 1.33 times at the end of 2025, so the debt survives this case. Bull case, about $336 a share. Earnings start at $190 million, which is the 2024 to 2025 run rate with Clyde and the 2026 purchases included. Organic growth is 2% a year as deferred capital projects are booked, and half of earnings is reinvested in acquisitions earning 10%, which is in line with the company's history. The business is worth about $4.40 billion, less $424 million of debt, or about $3.97 billion. Margin of safety price. We are fairly sure of the earnings level. Ten years of filings tie out exactly, and the aftermarket business has held up through tariffs and mill closures. The worst plausible outcome is a long downturn in North American lumber and paper, possibly while an acquisition turns out to be a mistake and goodwill is written off. The structure would survive it. Debt is modest against cash flow, the revolver runs to September 2030, the customer base is spread over thousands of mills, and there is no single regulator or controlling owner. The two things we are most likely to be wrong about are how long capital equipment stays weak and whether acquisitions keep earning what they have. If both go against us, the shares are worth roughly the bear case. The dividend is modest at about $1.36 a share, so most of any return over the holding period has to come from the business growing. At $125, the price is less than the bear-case value of the business with no acquisitions at all. If the base case plays out over about five years, the shares would be worth roughly $300, which implies about a 20% annual return. If the bear case plays out, it implies roughly break-even or better from that price. That is why we set the margin of safety price at $125. What changed since our last analysis. Our earlier work subtracted the whole of the swings in working capital and all capital spending, and it described the 2025 organic revenue decline as 16%. The filing shows organic revenue fell 4%; the 16% figure is the decline in capital equipment alone. Since then Kadant has also borrowed about $135 million more to fund 2026 acquisitions. The previous figures are not comparable with these. Things we could not fully pin down from the filings: the purchase prices and earnings contributions of the 2026 acquisitions, and whether the voestalpine BOHLER Profil purchase has closed. Its roughly 157 million euro cost could add further debt that is not yet on the balance sheet. If it closes, the business it brings should broadly offset that debt.