Kimball Electronics, Inc. (KE) stock intrinsic value fair value estimate & owner earnings analysis

Kimball Electronics is a contract manufacturer. It builds electronics and related products that other companies sell under their own names, with plants in the United States, Mexico, Poland, Romania, China, Thailand, and, since July 1, 2026, the Netherlands and India. In fiscal 2026 (year ended June 30) automotive was 46% of sales, medical 29% and industrial 25%. Three customers, Nexteer Automotive (18%), Philips (11%) and ZF (11%), were about 40% of sales. The filing says customers typically do not commit to firm production schedules for more than one quarter, and that the company lost a major automotive program over the past two fiscal years. How we measure earnings. We use the cash the business generates from operations, remove the swings from inventory, receivables and payables, subtract stock compensation as a real cost, and subtract the capital spending needed to keep the plants running. On that basis owner earnings per share were: fiscal 2018 $0.85, 2019 $1.47, 2020 $0.91, 2021 $1.99, 2022 $(0.34), 2023 $0.51, 2024 $1.16, 2025 $0.67 and 2026 $0.12. Working capital swung hard through this period (a roughly $150 million inventory and payables swing in fiscal 2022, and a reversal in fiscal 2025), which is why we strip it out. Revenue rose from $1.07 billion in fiscal 2018 to $1.82 billion in fiscal 2023 and has since fallen to $1.43 billion. We use the median of the nine years, $0.85 per share (about $21 million a year on roughly 24.8 million diluted shares), because the nine years include a build-up, a peak and a decline and so approximate a full cycle. Fiscal 2026 alone was $0.12, but capital spending that year was $51.5 million against depreciation of $38.7 million, and we do not let one year reset the level. Growth check. Owner earnings fell about 82% in fiscal 2026 (from $0.67 to $0.12). For the base case we start year one at about $0.64, not higher, which is fiscal 2026 with capital spending at the depreciation level of $38.7 million. Year one is below the $0.85 median because the drop was driven mainly by spending: capital commitments outstanding at June 30, 2026 were only $7.7 million, which suggests the heavy spending is easing. We then step back to $0.85 by year three. That is a return to a level the business has already reached, not growth. Base case, about $11.40 per share. Earnings of about $0.85 per share are sustained for roughly 30 years, then nothing further is assumed. We credit no revenue growth. Revenue has fallen three years running, and the things that could grow it (share gains, medical and drug-delivery programs, the new Indianapolis facility) are not contracted in the filings. The case rests on a structural feature: qualified, certified long-term supplier relationships in automotive and medical products, which have kept the business earning positive owner earnings in eight of the nine years measured. Beyond 30 years we assume zero because nothing named supports it. Bear case, about $2.80 per share. Owner earnings settle near $0.30 per share for ten years, then fade to zero over the next ten. This is built from disclosed risks: a large automotive program already lost, 40% of sales tied to three customers with no firm commitments beyond a quarter, revenue down about 21% from its fiscal 2023 peak, and the July 2026 Helvoet acquisition. Helvoet cost about EUR 90 million (about $103 million), funded from cash and credit lines, and the company itself flags possible goodwill and intangible impairments and integration risk. Debt was $116.2 million at June 30, 2026, before that payment. The added cost of that borrowing sits in this case rather than in a higher discount rate. Bull case, about $18.40 per share. Earnings run at about $1.40 per share, between the fiscal 2024 result ($1.16) and fiscal 2019 ($1.47) and 2021 ($1.99), for 30 years, after a slower first two years. The named levers are capital spending falling back toward depreciation (the commitment level supports this) and the medical share of sales continuing its recent rise from 25% (fiscal 2024) to 29% (fiscal 2026) on programs already running. We do not credit Helvoet's future earnings: its results are not in the filing, and a purchase at a fair price adds no value on its own. What we tested. The case depends on the $0.85 level being reachable when the most recent year was $0.12. Fiscal 2026 cash earnings before working capital, $54.5 million after stock compensation, were in line with the $50.0 million of fiscal 2025 and below fiscal 2024's $75.4 million, so the gap to the median comes mostly from capital spending, not from a collapse in operations. It could still be wrong if the lost automotive program is followed by others, or if the capital spending is a permanent cost of serving customers. Depreciation and amortization of $38.7 million, about a quarter of fiscal 2026 sales at the gross margin level we cannot verify here, is an ongoing reminder that plants must be replaced. We also note the Tampa facility was closed and sold in fiscal 2026, and about 17% of sales are booked by the China unit. Margin-of-safety price. The margin-of-safety price is about $6.00 per share, roughly half of the base case, because margins are thin, the business is cyclical, customer concentration is high, and debt has just risen to pay for the largest acquisition in its history. This report does not use the market price.