LINCOLN ELECTRIC HOLDINGS INC (LECO) stock intrinsic value fair value estimate & owner earnings analysis

Lincoln Electric, founded in Cleveland in 1895, is one of the world's leading makers of arc welding products. It sells welding wire, electrodes and other consumables, welding and cutting equipment, and increasingly robotic welding and automation systems through three segments: Americas Welding, International Welding, and the Harris Products Group (brazing, soldering and gas-handling products). Consumables are bought again and again by fabricators, construction firms, energy and shipbuilding customers, which gives the business a steady repeat base on top of a cyclical equipment and automation business. How we measure earnings. We start from the cash the business actually generated from operations, strip out swings in receivables, inventory and payables, charge stock compensation as a real cost, and deduct the capital spending needed to keep the business running (we treat a small slice of capital spending, about 2.3% of each year's sales increase, as growth investment). On that basis owner earnings per share rose from $3.35 in 2016 to $7.73 in 2022, $8.26 in 2023, $7.28 in 2024 and $10.27 in 2025. Non-cash items such as the $126.5 million pension settlement charge in 2021 and acquisition amortization (about $30 million a year) are added back because they used no cash; the 2023 profit from a $36 million property sale is excluded. The 2025 figure is flattered by about $83 million of tax deferred to later years, roughly $1.49 per share, so we do not treat 2025 as the new normal. To value the whole business before its lenders we add back cash interest (about $59 million in 2025), giving business cash flow of $8.17 per share in 2024 and $11.32 in 2025. Starting level. We use the median of 2021-2025, about $8.26 per share. These five years describe the business at its current size (sales of $3.2-4.2 billion, after the 2022 Fori Automation purchase and other acquisitions) and include 2024, when sales fell 4% on weaker industrial demand. 2025 sales rose to $4.23 billion, but the 10-K says that growth came from price increases passed through for higher input costs and from acquisitions, while volumes fell. Business cash flow per share rose about 39% in 2025; our base case assumes only 2% growth in year one, well below that, because much of the 2025 jump came from deferred taxes and pricing rather than more volume. First-half 2026 sales were up 12% and operating cash flow up 8%, which supports this level but does not move it. Base case ($144.80 per share). Business cash flow starts at $8.26 and grows 2% a year for ten years, reflecting Lincoln's long record of passing input-cost inflation through to consumable prices. It then holds flat in dollars indefinitely, which means it shrinks after inflation. That long tail rests on a 130-year consumables franchise and distribution network that has stayed profitable through every downturn in the record, including 2016 and 2020. We give no credit for automation growth, market-share gains, margin expansion or future acquisitions. Lincoln has bought businesses almost every year (about $140 million a year on average from 2016 to 2025), but that spending comes out of the same cash we value here, so counting the growth it buys would count the money twice. The business is worth about $8.9 billion ($160.97 per share). After debt it is worth $144.80 per share. Bear case ($103.86 per share). A downturn like 2020, when business cash flow per share fell 18%, hits in the first year (to $6.77), followed by a three-year recovery to about $8.00. Cash flow then stays flat in dollars for the rest of the decade, much like 2014-2017, when sales fell from $2.81 billion and did not recover until 2018. After year ten it declines 1% a year indefinitely as low-cost competitors chip away at consumables. The business is worth about $6.6 billion ($120.02 per share); after debt, $103.86. Even in this case cash flow covers interest about seven times over. Bull case ($221.78 per share). The business holds the stronger level it has already shown in 2023 and 2025 (excluding the 2025 tax deferral), about $9.47 per share. It grows 4% a year for ten years if Lincoln keeps raising consumable prices and its recently acquired automation businesses keep growing, in line with its roughly 4% yearly sales growth from 2014 to 2025. Growth slows to 2% for the next ten years and is flat after that. The business is worth about $13.1 billion ($237.95 per share); after debt, $221.78. Compared with our previous estimate (bear $62.81, base $143.67, bull $236.59), the base value is little changed. The bear case is higher because we now discount every case at the same 6% rate and build the downside into the cash flows themselves, rather than also applying a higher discount rate. The bull case is a little lower because we no longer assume growth continues forever. Debt. Lincoln financed its 2022-2025 acquisitions partly with borrowing. At June 30, 2026 it owed about $1.15 billion of senior notes, plus at most a small residual on its $1 billion revolving credit facility (which matures June 2029 and had $142 million drawn at year-end 2025). The notes carry a weighted average rate of 4.2% with about 8.7 years left. Because that fixed rate is below our 6% yardstick, the debt costs the owners about $130 million less than its face value. Against this we count about $142 million of the $242 million cash balance as surplus. Net debt is therefore about $0.89 billion, or $16.16 per share, and is subtracted in every case. Covenants (net leverage no more than 3.5 times EBITDA, interest coverage at least 2.5 times) are far from binding. What could make this wrong. A longer industrial recession than 2020, or a run of acquisitions that destroy value, would push results toward or below the bear case. Steel and other input-cost swings can squeeze margins when price increases lag, as the $18 million LIFO charge in 2025 shows. On the upside, if the automation business and recent acquisitions prove able to grow profitably for years, the bull case could prove too conservative. We could not confirm the exact short-term borrowings at June 30, 2026 from the data available. Cash flow during the half-year implies the revolver was largely repaid, and we allowed for a small residual balance.