$23.42
$39.79
bear $23.42
base $32.42
bull $39.79
margin of safety $19.00
market price* $35.96
Medline is the largest US maker and distributor of medical-surgical supplies: gloves, gowns, drapes, surgical kits, wound care and thousands of other consumables, sold to hospitals, surgery centers, nursing homes and physician offices. It has two parts. Medline Brand ($3.5B of second-quarter 2026 sales) makes or sources its own products and earns about a 30% segment margin before depreciation. Supply Chain Solutions ($4.1B) distributes other companies' products at about a 5% margin. The two are tied together by the Prime Vendor model: a hospital signs a contract, typically five years, to buy most of its med-surg needs from Medline, and Medline then converts it to its own brand over time. Contracts of this kind produced 63% of 2025 sales, and retention has averaged over 98% for five years. Sales were $28.4B in 2025, up 11.5% (10.5% organic, almost entirely volume), and were up another 11.6% in the second quarter of 2026. Earnings level. We measure the cash the owners keep: operating cash flow with working-capital swings removed, minus stock compensation and the capital spending needed to keep the business running. That came to $1,133M in 2023, $2,060M in 2024 and $2,044M in 2025. 2023 was depressed by a $90M inventory write-up from the 2021 buyout and by the post-COVID unwind of glove and gown prices. Medline was a partnership owned by Blackstone, Carlyle, Hellman & Friedman and the Mills family until its December 2025 IPO, so it paid almost no entity-level tax ($91M in 2025). We charge it full corporate tax from here on. Before interest and fully taxed, the business produced about $2.6B in 2024 and $2.5B in 2025. We anchor on about $2.55B, or $1.93 per economic unit. The 1,319M units include the Class B units held by the pre-IPO owners, which share the economics one for one. Only three years of audited history exist, which limits how sure we can be of that level. What changed in 2026. Sales keep growing but profit has not kept up. First-half adjusted EBITDA was up only 2% on 11% more sales, and SG&A rose 18%. In August management cut its full-year outlook for Middle East-related cost inflation, extra operating spending, quality remediation and softer retail sales. A fire at the Tracy, California distribution center cost $336M before expected insurance recoveries. We assume it is largely insured and treat it as non-recurring. Medline received $332M of IEEPA tariff refunds after those tariffs were struck down, less $89M owed back to customers. We count the net $243M as one-time 2026 cash and not as earning power. Tariffs cost about 115 basis points of gross margin in 2025, so their removal is the dated, filed reason we let margins recover in 2027. Owner earnings fell 0.8% in 2025. Our base case has underlying 2026 cash flow about 6% below the 2025 level, consistent with that weaker trend. Growth we credit. The Prime Vendor engine has added about 10% a year in organic volume in each of the last two years, with contracts that renew at very high rates. We credit it at well below that pace, 5% revenue growth tapering to 2% by 2035. Each extra dollar of sales ties up about 25 cents of inventory and receivables, and we charge that cash against each year's growth. 2024 and 2025 show how heavy this drag is: working capital absorbed $675M and $783M of cash. We do not credit further Medline Brand conversion lifting margins, because that would be margin expansion that has not happened yet. Base case: revenue grows 9.5% in 2026 and then fades from 5% to 2%. Cash margin before interest is 7.3% in 2026, recovers to 8.0% in 2027 as tariff costs fall away, and holds at 8.5% from 2028. That 8.5% is below the roughly 10% of 2024 and 9% of 2025. Business cash flow after growth investment rises from about $1.8B to $3.3B by 2035 and stays at that level afterward, with no growth assumed past 2035. The business is worth about $52.9B, or $40.14 per unit. It owes $10.3B, or $7.83 per unit. Equity is worth about $32.42 per unit. Bear case: a downturn like the 2022-2023 one Medline actually went through, when owner earnings fell by about half from their later level after PPE prices collapsed and buyout accounting charges hit. Revenue is flat in 2027 and falls 2% in 2028. Cash margin drops to 6.8%, which is about the 2023 trough of roughly $2.1B, recovers only to 7.8%, and growth stays at 2%. The bear case also has Medline refinancing $8.5B of debt maturing in 2029 at materially higher cost, including the 3.875% notes, which adds about $0.8B to what is owed. The business is worth about $41.9B ($31.79 per unit). Debt is $11.1B ($8.44). Equity is about $23.42 per unit. Even at the trough, cash flow covers interest of roughly $650M more than three times. Bull case: Prime Vendor wins keep volume growth at 6% and then taper, and margins return to 9.4%, about the 2025 level, not 2024's, by 2028. The business is worth about $62.7B ($47.53 per unit). Debt is $10.3B ($7.83). Equity is about $39.79 per unit. Debt. Borrowings were about $12.75B at June 2026 against $2.7B of cash and short-term investments, of which we treat $2.2B as surplus. That leaves net debt of about $10.6B. We reduce it by about $0.25B because the 3.875% fixed notes are cheap until 2029. Term loans cost SOFR plus 1.75%. Maturities are light until 2028 ($726M), then $8.5B falls due in 2029 and $3.3B in 2030. That 2029 wall is the debt event that matters. Medline also owes its pre-IPO owners 85% of the tax savings from the IPO's tax-basis step-up under a tax receivable agreement ($4.4B recorded at June 2026). The payments come only out of savings that we already ignore by charging full tax, so the two largely cancel. We leave the small net benefit out, which is slightly conservative. Previous estimate. Our earlier figures used a different measure of earnings and are not comparable. Margin-of-safety price. How sure are we of the earnings level? Moderately. Three audited years show that cash generation can nearly halve, as it did in 2023, and 2026 shows that sales growth does not guarantee profit growth. What could plausibly go worst? Losing several large health-system contracts as hospitals consolidate, new tariffs on Asian-made gloves and gowns that Medline cannot pass on, or a product-quality problem: management is already spending on quality remediation. The structure would survive these. The debt is about 3 to 4 times cash flow and nothing large matures before 2029, but a bad 2028 would make that refinancing expensive. If we are wrong about margin recovery and the bear path happens, the equity is worth in the low $20s. If growth also stalls, it is worth the high teens. The price assumes a three-to-four-year holding period. The company pays no dividend, so the whole return has to come from the business compounding into its value. The margin-of-safety price is $19 per share: from that price the base case implies 20% a year over three to four years, and the bear case implies no loss.