$117.29
$232.76
bear $117.29
base $184.78
bull $232.76
margin of safety $80.00
market price* $120.29
Mohawk is the world's largest flooring manufacturer. It sells ceramic and porcelain tile and natural stone (Global Ceramic, 40% of 2025 sales), carpet, rugs and resilient vinyl in North America (Flooring North America, 34%), and laminate, wood, vinyl and insulation panels mainly in Europe (Flooring Rest of World, 26%). About 54% of sales are in the United States and 31% in Europe. Its customers are home-improvement and flooring retailers, builders and commercial contractors, so demand follows housing turnover, new construction and remodelling, and margins follow energy, resin, freight and the price of imported product. 2025 sales were $10.8 billion, almost exactly where they were in 2018. How we measure what the business earns. We start from operating cash flow, strip out swings in inventory, receivables and payables, charge stock compensation as a real cost, and deduct capital spending except the portion that paid for genuine growth. Large goodwill and brand write-downs in 2022 ($696 million) and 2023 ($878 million) consumed no cash and are not deducted; they are the accounting record that past acquisitions were overpaid, and we carry that history in the bear case instead. On this basis the cash the business produced before paying its lenders ran from about $505 million (2023) and $547 million (2017, a heavy plant-building year) to $1.13 billion (2021), with most years between $790 and $875 million; the ten-year median is about $826 million. Per share, owner earnings after interest were $8.93 in 2025, $11.36 in 2024 and $6.58 in 2023. Two cautions on the recent years: capital spending in 2024 and 2025 ($454 million and $440 million) ran about 30% below depreciation as management deliberately cut back, which flatters those years by roughly $150-200 million each, and 2026 spending is guided up to about $480 million. Our previous estimates were built on a different basis and are not comparable with the figures here. The level we use. The last decade contains one full cycle: a boom from 2016 to 2021 and a downturn from 2022 to 2025 in which U.S. existing-home sales sat near multi-decade lows. We use the full decade but set the normal level below its median, at about $760 million a year before interest, because operating income in the downturn ($490 million in 2025, $694 million in 2024) has been far below the $1.1-1.35 billion of 2016-2018, imported vinyl and tile now compete hard, and recent years were flattered by deferred capital spending. In 2025 owner earnings fell about 23%. We start the base case at about $650 million in 2026, above the 2025 level, because the first half of 2026 already shows the improvement: sales up 7% to $5.72 billion, operating income up from $285 million to $366 million, and operating cash flow of $427 million against $210 million a year earlier. We credit no growth beyond returning to the normal level, because Mohawk's demonstrated growth has come from acquisitions that later had to be written down and from a housing cycle, not from a repeatable process. Restructuring since 2022 is expected by management to save about $365 million a year; we do not add that on top, because the same savings have so far been absorbed by weak volumes and price pressure. What it owes. At July 4, 2026 Mohawk had about $1.92 billion of borrowings (euro 1.75% notes of about $587 million due June 2027, 5.85% notes of $600 million due September 2028, 3.625% notes of $500 million due 2030, commercial paper, and finance leases) against $850 million of cash. Allowing about $200 million of cash to run the business, net debt is about $1.27 billion. The low-coupon euro notes will be refinanced in 2027 at higher rates; the extra cost is small. Cash interest in 2025 was only $33 million, so there is no near-term strain, and $1.3 billion of committed credit was undrawn at year-end. Base case: business cash flow recovers from about $650 million in 2026 to about $760 million by 2028 and stays there, with no further growth assumed. The far years are supported by something structural: Mohawk has been the largest flooring maker in the world for two decades, owns low-cost plants on two continents and leading brands (Daltile, Marazzi, Pergo, Quick-Step, Karastan), and flooring is replaced continually. The business is worth about $12.5 billion, it owes about $1.27 billion, leaving about $11.3 billion, or about $185 a share. Bear case: a repeat of the 2008-2010 housing collapse, when Mohawk's sales fell by roughly 30% and its operating profit before write-downs nearly disappeared. We model business cash flow of about $600 million in 2026, falling to about $250 million for two years, then recovering only to about $550 million, below anything seen in the current downturn, as imports and lost share keep margins down permanently. The refinancing of the 2027 and 2028 notes happens in the trough at higher cost. Interest of roughly $80-100 million remains covered even at the bottom. The business is worth about $8.5 billion, it owes about $1.35 billion including the extra refinancing cost, leaving about $7.1 billion, or about $117 a share. Bull case: the restructuring savings and the 2026 recovery carry business cash flow to about $950 million by 2029, roughly the average of 2019-2022 and still below the $1.13 billion achieved in 2021. The business is worth about $15.4 billion, owes about $1.27 billion, leaving about $14.2 billion, or about $233 a share. The margin-of-safety price. We are only moderately sure of the earnings level: it has swung by a factor of two over a decade, the strongest years came before cheap imported vinyl and tile and before the 2022 energy shock, and two recent years were helped by spending less on plants than they wear out. The worst plausible outcome is not a single bad year but a long stretch like 2008-2012 combined with tariff-driven price wars, in which Mohawk earns a thin return on a very large asset base for many years. Its structure would survive that: debt is modest relative to cash generation, there is no customer concentration that can sink it, the plants are hard assets and there is no controlling shareholder. If we are wrong about the normal level and it is closer to the $550-600 million of the recent trough years, and wrong that the restructuring savings stick, the shares are worth roughly $115-130. The company pays no dividend, so the return has to come from recovery in the business and from buybacks, which have shrunk the share count by about 2% a year. The price assumes a four-to-five-year holding period for value to show. At $80 a share the whole company, including its debt, would be valued at about $6.1 billion, roughly ten times the cash it produced before interest in a weak 2025 and eight times our normal level; from that price a recovery only to the normal level, over four or five years, implies the 20% a year target, and even the long-downturn case leaves value above that price. Above that, a slow or partial recovery would fall short of the target, so $80 is the margin-of-safety price.