Koppers Holdings Inc. (KOP) stock intrinsic value fair value estimate & owner earnings analysis

Koppers makes treated wood that railroads and electric utilities replace year after year, and it makes the chemicals used to treat it. It has three segments. Railroad and Utility Products and Services had $926.8 million of 2025 sales. It treats crossties for every North American Class I railroad, and about 75% of its North American railroad sales are under long-term contracts. It is also the second-largest utility pole supplier in the United States and the largest in Australia. Performance Chemicals had $543.8 million of sales from wood preservatives such as CCA and DCOI. Carbon Materials and Chemicals had $408.7 million of sales. It distills coal tar, a by-product of the coke used in steelmaking, into carbon pitch and creosote, and it supplies all of the railroad business's creosote. How we measure earnings: we start with operating cash flow and remove swings in working capital. We subtract stock pay as a real cost, and we subtract the capital spending needed to keep the plants running. Spending that goes with revenue growth is treated as investment, not cost. Measured this way, the company earned between $0.47 and $4.66 a share each year from 2019 to 2025. The median, $2.63, is our starting level. We begin in 2019 because about $264 million of acquisitions in 2018 changed the business. The window covers 2020, the 2022 inflation surge and a full cycle of capital spending. From 2021 to 2023 the company spent $105 to $125 million a year on plants, including growth projects such as the yield-improvement project at the Nyborg, Denmark carbon plant, finished in early 2024. Spending fell to $55 million in 2025, and the company plans about $55 million for 2026. First-half 2026 spending was $23.7 million. First-half 2026 owner earnings of about $49 million matched the first half of 2025, so the higher 2025 level ($4.66 a share, up from $3.07 in 2024) has held for two more quarters. We add back non-cash charges: $73.6 million of depreciation and amortization, a $27.1 million pension settlement and the write-downs from closing the phthalic anhydride plant at Stickney, Illinois. The cash costs of that closure are counted as costs. Base case, $64.05 a share: owner earnings rise from $2.63 to about $4.00 a share by year three. Two things drive this. Capital spending stays near depreciation, which is about $58 million a year excluding amortization of acquired intangibles. Buybacks also continue; diluted shares fell from 21.5 million in 2023 to 19.1 million by mid-2026. The $4.00 is below the 2025 figure because 2025 was helped by about $12 million of pension funding that the company says ran through working capital, and by capital spending slightly below depreciation. After year three, earnings grow about 1% a year as buybacks are partly offset by a shrinking carbon business. After year ten, we hold earnings flat at 87% of the year-ten level. The cut removes the carbon business, about 13% of segment profit after capital spending, because its coal-tar supply depends on a shrinking coke industry. What keeps earning is replacement demand: about 450 million wood crossties in service in North America, plus utility poles that need periodic replacement. That demand is served by 18 treating plants, and every crosstie plant sits on a major railroad's line. Bear case, $27.55 a share: from $2.63, earnings shrink about 5% a year because problems already in the filings continue. Performance Chemicals lost 17% of its volume in 2025 after a shift in U.S. market share. Lower Class I crosstie volumes cut 2025 sales by $21.8 million. Carbon pitch prices fell 6%, and the carbon business keeps closing capacity. Debt makes this case worse. Debt was $906 million in June 2026, owed on a variable-rate credit facility and a term loan, both due in 2030. At the end of 2025, net debt was 3.3 times EBITDA, against a loan limit of 4.75 times. In this case, refinancing in 2030 costs about one percentage point more, or roughly $0.40 a share a year. Buybacks stop, and earnings sit near $1.74 a share through year ten. They then fade to $1.20 a share by year twenty, roughly what the railroad and pole business earns on its own, and stay there. Bull case, $95.97 a share: the 2025 level of $4.66 holds and grows 4% a year. The drivers are continued buybacks, a growing U.S. utility pole business (strengthened by the Brown Wood purchase in April 2024 and Greenhill in December 2025), and crosstie price increases like the $11.0 million achieved in 2025. After year ten, earnings stay flat at 90% of the year-ten level. All cases use a 6% discount rate. We do not subtract debt separately, because these cash flows are already after interest; debt risk is carried in the bear case. One item could not be resolved. In the second quarter of 2026, Koppers booked $215.8 million of impairment and restructuring charges, which produced a $147.5 million net loss for the quarter. Net plant and equipment fell from $650.9 million to $482.1 million in six months. We could not read the quarterly report's narrative, so we cannot say which facilities were affected. Cash earnings were not hurt in the first half. However, if the charge means leaving more than part of the carbon business, or brings large cash closing costs (closing the phthalic anhydride plant alone was expected to cost $22 to $26 million in cash), our estimates are too high. The margin-of-safety price of $35 sits well below the base case because of the debt, the shrinking carbon business, lost chemical market share and this unexplained charge.