$20.90
$156.41
bear $20.90
base $110.26
bull $156.41
margin of safety $62.00
market price* $234.99
Matson runs container ships between the U.S. West Coast and Hawaii, Alaska and Guam, a premium expedited service from Ningbo and Shanghai to Long Beach (the CLX and MAX strings), a logistics business, and holds a stake in the SSAT terminal venture. The Hawaii and Alaska trades are reserved by the Jones Act for U.S.-built, U.S.-flagged, U.S.-crewed ships, which makes them stable, protected businesses. The China service competes with CMA CGM, ZIM, Cosco and others on speed and reliability and is where results swing most. The China exposure is a shipping route, not ownership; Matson is a U.S. company. HOW WE MEASURED EARNINGS. We start from operating cash flow, remove swings in receivables, prepaid items and payables, and subtract stock compensation as a real cost. Ship dry-dockings and lease payments stay inside operating cash flow as ongoing costs. Because Matson holds a large cash pile and a government-sponsored ship fund (the Capital Construction Fund) that earn interest, we strip the after-tax interest income out of the earnings stream and count the cash separately; we add back the small interest Matson pays and count the debt separately. On that basis the cash Matson generated before capital spending was about $418 million in 2020, $437 million in 2023, $611 million in 2024 and $552 million in 2025 (2021 and 2022, at roughly $1.1 to $1.3 billion, were a one-time pandemic freight windfall and are excluded). The median of the four representative years is about $495 million. The key judgement is how much it costs to keep the fleet going. Ship spending is lumpy: Matson builds ships in programs, then spends little for years. Rather than use a few recent years, we averaged the whole renewal cycle from 2016 through the scheduled 2028 payments. That cycle covers the two Aloha Class and two Kanaloa Class ships delivered in 2018 to 2020, LNG conversions, and the three new Aloha Class ships under contract at Philly Shipyard (deliveries scheduled for the first and third quarters of 2027 and the second quarter of 2028, about $1.0 billion in all). Vessel spending over those 13 years averages about $163 million a year and all other capital spending (containers, chassis, terminal work at Sand Island in Honolulu, equipment) about $138 million, so we charge about $300 million a year as the cost of staying in business. That leaves about $195 million a year of business cash flow. The 10-K schedules total capital spending of $575 to $595 million in 2026, $305 to $325 million in 2027 and $125 to $145 million in 2028; because those payments come earlier than an even annual charge would, we also deduct about $140 million in today's money for the timing. Reported owner earnings per share swing widely (negative in 2016 to 2019 while ships were being built; $5.74, $10.73 and $5.51 in 2023 to 2025) mainly because of this lumpy ship spending, which is why we spread it across the cycle. RECENT RESULTS AND GROWTH. Owner earnings per share fell about 49% in 2025, mostly because vessel payments rose to $244 million and China volume dropped 9.5% amid tariff uncertainty; before capital spending the decline was about 10%. Our base case starts at $195 million a year, below what 2025 itself produced after the normal fleet charge (about $250 million), and assumes no growth. The first half of 2026 was stronger: operating cash flow of $231.6 million versus $194.6 million a year earlier, and second-quarter operating income of $158.9 million versus $113.0 million. One strong half is not enough to raise the starting level. We credit no growth: Hawaii and Alaska volumes rose under 2% in 2025, the new ships add China capacity but not contracted cargo, and buybacks are not business growth. What keeps the earnings going beyond ten years is the Jones Act franchise Matson has operated in Hawaii for more than a century, and a fleet whose renewal cost we already charge every year. THE THREE CASES. Each case values the business, then subtracts what Matson owes and adds the surplus cash it holds. Matson owed $361 million at December 31, 2025, mostly government-guaranteed ship bonds fixed at about 1.2% to 1.35% running to 2043 and 2044, plus private notes at roughly 3% to 4%. Because that debt is so cheap and long, we count it at about $300 million. It held $141.9 million of cash and $532.7 million in the ship fund; after keeping $100 million for operations, $574.6 million is surplus, and that fund will pay for new ships whose cost we have already charged. Net, Matson holds about $275 million ($8.96 per share) more than it owes. Per-share figures use about 30.7 million diluted shares. Base case, $110.26 per share. Business cash flow of about $195 million a year held flat, reflecting the median of the post-2020 years with the China expedited premium intact at its recent level. Business worth about $3.11 billion after the ship-payment timing; plus net cash of $275 million; equity about $3.39 billion. Bear case, $20.90 per share. The China premium is competed away and the business returns to its pre-2020 economics. Evidence: from 2016 to 2019, with the CLX already running but before the expedited premium, cash generation before capital spending averaged about $218 million a year, roughly $280 to $300 million in today's prices after Hawaii and Alaska rate increases. If the premium disappeared Matson would not need to keep replacing China-service ships, so we charge about $260 million a year for the fleet, leaving about $40 million a year (about $670 million in value). We also deduct the same $140 million for the contracted ship payments, which would be made into a weaker market, and one downturn of the kind Matson's island trades saw in 2008 to 2010, when Hawaii volumes fell for several years against a largely fixed cost base, costing about $160 million in today's money. Business worth about $370 million; plus net cash of $275 million; equity about $640 million. Matson can carry its debt in this case: cash interest was $5.3 million in 2025, scheduled maturities are about $40 million a year in 2026 and 2027 and $28 million a year in 2028 to 2030, $544 million remained available under its revolving credit line at year-end 2025, and the minimum interest coverage covenant was removed in 2025. Bull case, $156.41 per share. The China service keeps earning at its 2024 and 2025 level, giving about $580 million a year before capital spending and about $280 million after the fleet charge, held flat. Business worth about $4.53 billion; plus net cash of $275 million; equity about $4.80 billion. We did not add a repeat of the 2021 and 2022 windfall, rate increases or volume growth. MARGIN OF SAFETY PRICE. How sure are we of the earnings level? Sure of the Hawaii, Alaska and Guam core, which has protected routes and a century-long record; much less sure of the China premium, which has delivered between nothing extra (before 2020) and a windfall (2021 and 2022), and which drives most of the gap between our cases. The worst plausible outcomes are a repeal or broad waiver of the Jones Act, which the 10-K lists as a risk and no case models; a lasting collapse of trans-Pacific expedited freight; or cost overruns on the Philly Shipyard program (the $1.0 billion excludes some owner items and change orders). The structure survives most of these: debt is small, long-dated and cheap, no covenant is likely to bite, and the cash plus ship fund already covers most of the remaining ship payments. If we are wrong about the China premium the shares are worth around $20 to $60. If we are wrong about fleet cost in the other direction, value would be higher: management guides routine non-ship spending of $100 to $170 million a year, and after 2028 vessel spending should be light for several years. During the holding period, Matson pays a modest dividend and has been retiring roughly 5% to 8% of its shares a year, which helps but does not offset a long wait. The margin-of-safety price is about $62 per share. If the China service merely holds its current earning power for the next three years, the base case implies the shares could be worth roughly $100 to $110 from that price, which implies near 20% a year, while the protected Hawaii and Alaska business plus net cash limit the downside in the bear case if the premium fades. The margin-of-safety price is set no higher because one segment we cannot measure separately drives most of the value. WHAT CHANGED SINCE OUR LAST VIEW. Our late-September estimates were $14.57 (bear), $120.98 (base) and $166.04 (bull). The business has not changed in two weeks. Those figures were built on a different measure of the cost of keeping the fleet and are not strictly comparable to these. WHAT WE COULD NOT FULLY RECONCILE. Matson does not disclose profit by trade lane, so the China share of earnings is inferred from history rather than measured. Balance sheet figures are as of December 31, 2025; the June 2026 quarterly report shows cash of $119.3 million and debt of $341.3 million, but we did not verify the June ship-fund balance, and $119.8 million of first-half buybacks reduced both cash and shares. The 2020 interest figure used in the earnings level is approximate. The interest-rate benefit on the debt is an estimate; we did not price each private note individually.