$10.80
$77.80
bear $10.80
base $54.20
bull $77.80
margin of safety $33.00
market price* $50.50
Knife River is a U.S. construction-materials company. It mines and sells crushed stone, sand and gravel (aggregates), makes ready-mix concrete and asphalt, sells cement and liquid asphalt, and does paving and site-development contracting. It operates in Alaska, California, Hawaii, Oregon, Washington, Idaho, Montana, Wyoming, Iowa, Minnesota, North Dakota, South Dakota and Texas, and holds about 1.3 billion tons of aggregate reserves. It was spun off from MDU Resources in 2023. In March 2025 it bought Strata Corporation (North Dakota and northwestern Minnesota) for about $454 million and added roughly 30 years of aggregate reserves. How we measure earnings. We start from operating cash flow, take out the swings caused by receivables, inventory and payables, subtract stock compensation, and subtract only the capital spending needed to stay in business. Knife River spent $348 million on capital projects in 2025, but its filing says only $169.5 million was replacement of equipment and plants, with $178.6 million going to new quarries and greenfield projects, so we treated the latter as growth. We then add back interest paid, because the debt is valued separately and subtracted. On that basis the business generated about $1.57, $1.90, $4.30, $3.82 and $4.70 per share before interest for 2021 through 2025. Before 2023 the company was part of MDU, so its financials are carve-outs. Our normal level is the median of all five years, $3.82 per share, which is deliberately below the 2025 result of $4.70 (up 23% from 2024). The company has been standalone for only three years, and the two lower years are real experience, so we did not lean on the best years. The figures reconcile to reported net income plus depreciation within about 2%. Base case, $54 per share. Growth of 2% a year for ten years, then flat. Year one is 2% against actual growth of 23% in 2025, so nothing here requires the recent pace to continue. What we credit: legacy aggregate prices rose in the mid-single digits in 2025, and the average aggregate price per ton rose from $16.29 (2023) to $17.47 (2024) to $18.99 (2025); we give credit for only a fraction of that, as pricing net of cost inflation. What we leave out: further acquisitions, volume growth, and margin gains, none of which are contracted or done at a steady small scale. The business is worth about $74 per share before debt. Debt is about $20 per share after cash, so shares are worth about $54. After year ten we keep earnings flat rather than growing or fading, because replacement spending on depleting reserves is already charged every year and reserves are large. Bull case, $78 per share. Uses the stronger 2023-2025 level of $4.30 per share and 4% annual growth for ten years, roughly the demonstrated legacy pricing and below the last two years of average aggregate price gains, with Strata contributing a full year. Business value is about $98 per share, less about $20 of debt. Bear case, $11 per share. Business cash flow drops back to the 2022 level of about $1.90 per share and stays there, with no growth. That is a demonstrated level, not a forecast of collapse. Construction volumes are cyclical, and asphalt sales volumes and prices already fell in 2025 because of less paving work. Business value is about $32 per share against about $21 of debt, leaving about $11. We charged the term loans an extra 1% at refinancing. Debt. At year-end 2025 the company owed $425 million of 7.75% senior notes due May 2031 and $756 million of variable-rate term loans (about 5.6%) due 2030 and 2032, with nothing drawn on a $500 million revolver. The notes cost more than 6% and the term loans less, which nets to a small increase of about $21 million. We deducted about $1.2 billion of debt less roughly $50 million of excess cash. After the balance sheet date, the company spent about $184 million on acquisitions in the first half of 2026, and total debt was $1.6 billion at June 30, 2026. Cash flow is seasonally negative in the first half, as in 2025, and we assume the acquisitions are worth what was paid, so they do not change our per-share value. In the bear case, business cash flow of roughly $108 million a year covers annual interest of about $77 million by only about 1.4 times, so leverage is a real weakness in that case, though no debt matures before 2030. What could make this wrong. If aggregates pricing stalls, the base case's 2% growth is too generous. Capital spending has ranged from about 4% to 11% of revenue, and if true maintenance needs are nearer the top of that range, earnings are lower. We could not see the first-half 2026 filing text, so the acquisitions made in 2026 are valued at cost. A Portland Harbor cleanup matter exists in Oregon; the company believes a prior owner is required to indemnify it, and it does not expect material costs.