NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/ (NRUC) stock intrinsic value fair value estimate & owner earnings analysis

What NRUC is. The NYSE symbol NRUC is not a share of stock. It is the 5.50% Subordinated Notes due May 15, 2064 of National Rural Utilities Cooperative Finance Corporation (CFC). CFC is a tax-exempt, member-owned cooperative lender that, by its own statement, cannot issue equity securities. The notes were issued on May 6, 2019 ($250 million, all still outstanding at May 31, 2026) in $25 denominations. They pay $1.375 a year per note in quarterly installments (February, May, August and November 15). CFC may redeem them at $25 plus accrued interest at any time, because the first call date of May 15, 2024 has passed. CFC may also defer interest for up to 40 consecutive quarters; deferred interest keeps accruing and itself earns 5.50%, and while it is deferred CFC cannot pay its members on their subordinated certificates. CFC says it has never deferred interest on any of its subordinated debt. A holder's return is therefore fixed by contract: CFC's growth or profitability cannot raise what the note pays, it can only affect whether it is paid. We value the note as the present value of those payments at the same fixed 6% rate we apply to every security, and we put all risk into the three cases rather than into the rate. The business behind the promise. CFC lends to rural electric cooperatives. Electric utility organizations make up about 98% of its $38.4 billion loan book. It has 903 borrowers; the 20 largest account for 19% of loans and the largest single exposure is about 1%. Texas is the biggest state, at $6.4 billion or about 17% of loans. Over its 57-year history CFC has had 18 defaults in electric lending, which caused only $100 million of net charge-offs in total. Its worst losses came from telecommunications lending: $427 million in total, mostly a $354 million charge-off in fiscal 2011. Telecom loans are now about 2% of the book. Loans not accruing interest fell from $237 million at May 2021 to $7.5 million at May 2026. Reported net income swings with the market value of CFC's interest-rate hedges: it was a $585 million loss in fiscal 2020 and a $262 million profit in fiscal 2026. Cash from operations, after paying $1.44 billion of interest, has been steadier, at $311 million in fiscal 2026. Where the notes rank. At May 31, 2026 CFC had $35.9 billion of debt. Roughly $33.5 billion of senior and secured debt ranks ahead of these notes. They rank equally with CFC's other subordinated deferrable debt, $1.31 billion in total. Behind them are $1.13 billion of members' subordinated certificates and $3.31 billion of equity, of which about $0.52 billion is accumulated gains on the hedges. That leaves roughly $3.9 billion of junior capital that would have to be wiped out before these notes lost principal. This is about 39 times CFC's entire 57-year electric-loan loss history. Because CFC is a lender, borrowing is its raw material, so no further debt is deducted: the senior debt matters only as the claim that ranks ahead, which the cases account for. Base case ($23.60). CFC pays every coupon and repays $25 in May 2064, and does not call the notes early. The evidence on calls: in fiscal 2026 CFC redeemed $650 million of other subordinated notes at par, including a variable-rate 2043 issue that cost 7.45% at May 2025. It replaced them with $600 million of new subordinated notes due 2056 at 5.75% and 5.95%. CFC calls debt when replacing it is cheaper. Its newest subordinated money costs more than this note's 5.50%, so redeeming it now would raise CFC's costs. Because the coupon is slightly below 6%, the note is worth a little under par when held to 2064. Bear case ($23.43). CFC hits a credit problem, for example among its power-supply borrowers or in its Texas concentration, and uses its full right to defer interest for 40 quarters (modeled as 2031-2040). It then pays everything owed with compounded interest, and repays principal in 2064. We did not include a loss of principal. Nothing in the record comes close: the worst loss in CFC's history was about one-eleventh of today's junior cushion. Deferral has only a modest effect on value at a 6% yardstick because the deferred interest compounds at 5.50%. Bull case ($24.63). CFC uses its call right around 2031 and pays $25. This is the refinancing it carried out in fiscal 2026, and its newest 5.75% subordinated notes reset to a new rate in April 2031. The bull case depends on CFC's subordinated borrowing cost falling below 5.50%, which we cannot show today. That is why it sits at the 90th percentile and not in the base case. The most any holder can ever get is $25 plus interest. Change since our August 2026 view. We previously valued the notes at market-style required yields of 7.25% to 11%. That gave $12.70 bear, $19.35 base and $25.00 bull, and a $12.70 margin-of-safety price. We now value them at our fixed 6% rate and carry risk only through what can actually happen to the payments. CFC's record of tiny losses and its large junior cushion leave little room for a bad outcome, so the bear and base cases rise sharply. The bull case falls below par because an early call is possible but not evidenced as near. Margin-of-safety price ($17.00). The three cases sit within about $1.20 of each other, so there is little doubt about what the note is worth. The real uncertainty is how long its market price takes to move toward that value. That depends on interest rates, not on CFC, and on a 2064 bond it can take years. At $17.00 the coupon alone yields about 8.1%. If the price recovers to about $23.40, our bear value, within roughly two and a half years, the bear value implies a total return of about 20% a year from $17.00. If it takes longer, the implied return falls short. A price above $17 leaves no margin for that wait. Gains above $25 are impossible because CFC would call the notes. What would make this wrong: a large default among power-supply cooperatives big enough to consume the $3.9 billion of junior capital; the loss of CFC's tax-exempt status, which its filings name as a risk and which would make it a taxable cooperative; or a long period in which the notes trade far below value even though they keep paying.