LSB INDUSTRIES, INC. (LXU) stock intrinsic value fair value estimate & owner earnings analysis

LSB Industries makes nitrogen chemicals from natural gas at three plants it owns, in El Dorado, Arkansas, Pryor, Oklahoma and Cherokee, Alabama, and runs a nitric acid plant in Baytown, Texas for Covestro under a contract that runs to October 2029. Everything starts with ammonia, which LSB sells as it is or upgrades into UAN fertilizer, ammonium nitrate and nitric acid. A large part of the business is industrial and mining sales, mostly on multi-year contracts that pass the cost of natural gas through to the customer. The rest is farm fertilizer sold at spot prices that swing with the global ammonia market. The plants made 826,000 tons of ammonia in 2025, up from 742,000 in 2019. In 2025 LSB stopped making fertilizer-grade ammonium nitrate and switched that output to an ammonium nitrate solution for mining customers, including a five-year contract with Freeport Minerals that began in 2025. How we measure earnings: we start from operating cash flow, then remove working-capital swings, stock-based pay and the capital spending needed to keep the plants running. Because LSB carries a lot of debt and its share count changed sharply in 2021, we value the business before interest and then subtract what it owes. Measured that way, the business generated $7 million in 2018, $5 million in 2019 and $26 million in 2020 (trough nitrogen prices), then $154 million in 2021 and $363 million in 2022 (the gas and ammonia price spike that followed the invasion of Ukraine), then $72 million in 2023, $5 million in 2024 and $85 million in 2025. 2024 was hurt by major maintenance shutdowns at Pryor and Cherokee and $92 million of capital spending. 2025 had no major ammonia shutdowns. We leave out 2016 and 2017. In 2016 the company was finishing the new El Dorado ammonia plant and selling its climate-control business, and in 2017 that plant was still ramping up (it ran 86% of the time, while Pryor ran 69%). Our starting point is $48.9 million a year, about $0.67 per share. That is the middle value of 2018 to 2025, a full price cycle with three trough years, two boom years and three middle years. It is well below 2025's $84.7 million, the year cash flow jumped from $5.1 million in 2024, so our first year assumes a big step down from last year rather than further growth. Results for the first half of 2026 look roughly in line with this, not ahead of it. Operating cash flow was $111 million, but much of that came from a build-up of payables that should reverse. The company expects 2026 ammonia output of 780,000 to 810,000 tons because of planned maintenance shutdowns at El Dorado and other sites. Debt: LSB owes $438.6 million of 6.25% senior secured notes due October 2028, plus about $9 million of leases and short-term financing. Against that it holds $218 million of cash and U.S. Treasury bills. We count $168 million of that, holding back about $20 million as operating cash and about $30 million for the payables build-up we expect to unwind. That leaves net debt of about $280 million, or $3.86 per share. The 2028 maturity is the biggest single risk. In 2018, when the business was weak, LSB had to borrow at 9.625%. Base case ($5.05 per share): the business earns about $48.9 million a year for 30 years. The plants have run for decades and are kept up by the maintenance spending we already deduct. Beyond 30 years we credit nothing. The notes are refinanced in 2028 at about 7.5%, which costs about $27 million in today's money. The business is worth about $673 million against about $307 million owed, which leaves $366 million for shareholders. Cash flow covers the interest bill about 1.8 times. Bear case (-$1.81 per share): trough conditions like 2018 to 2020 return. Cash flow averages $12.5 million for five years, then $16.5 million a year after that, the middle value of the non-boom years since 2018. The notes have to be refinanced at around 9.6%, as in 2018. On those numbers the business is worth about $211 million but owes about $341 million, so the company would owe roughly $130 million more than it is worth. Cash flow would not cover interest, so shareholders would face dilution or a restructuring. Bull case ($9.73 per share): the better production since 2023 and the shift toward contracted mining and industrial sales hold, and cash flow runs at about $72 million a year, the middle value of 2023 to 2025, for 30 years. The notes are refinanced near today's rate. The business is worth about $991 million against about $286 million owed, about $705 million for shareholders. What we left out: no case assumes another price spike like 2021 to 2022, because nothing identifiable points to one. The El Dorado carbon-capture project with Lapis Carbon Solutions would pay LSB a fee for each ton of CO2 stored and would let it supply low-carbon product to Freeport. But it still needs an EPA Class VI permit, which was resubmitted in December 2025, and the fee has not been disclosed, so we give it no value. Cash taxes have been very low because of past losses. As those losses are used up, taxes will reduce cash flow, especially in the bull case. Since our previous estimate (bear -$6.69, base $1.23, bull $12.90), we now value the business before its lenders and then subtract debt. We also count the company's Treasury bill holdings against its debt, discount at a fixed rate instead of a higher risk-adjusted one, and use a single 2018 to 2025 cycle as the earnings base. These changes raised the bear and base values and lowered the bull value. What would make this estimate wrong: nitrogen prices returning to 2019 to 2020 levels for several years at the same time as the 2028 refinancing, more unplanned downtime at the older Pryor and Cherokee plants, or loss of the gas-cost pass-through contracts. On the upside, approval and start-up of the carbon-capture project, or a demonstrated ability to refinance cheaply, would help. All figures used come from the company's annual and quarterly reports, and the cash-flow figures reconcile to reported net income without exceptions.