Oil-Dri Corp of America (ODC) stock intrinsic value fair value estimate & owner earnings analysis

THE BUSINESS. Oil-Dri Corporation of America mines and processes absorbent clays, and since buying Ultra Pet in May 2024 also silica-gel crystals, into two product families. Despite its name it is not an oil company. The Retail and Wholesale group ($303.0M of fiscal 2025 sales) sells cat litter under brands such as Cat's Pride and Jonny Cat, private-label litter, Fresh Step coarse litter that it manufactures for Clorox under a long-term supply agreement, and industrial and sports absorbents. The Business to Business group ($182.6M) sells bleaching and purification clays used by edible-oil processors and renewable-diesel refiners ($110.1M), agricultural chemical carriers ($44.3M) and animal health and nutrition products ($28.2M). The fiscal year ends July 31. Walmart accounted for about 19% of fiscal 2025 sales. The company reports proven and probable clay reserves sufficient for over forty years at its current rate of use. HOW WE MEASURED EARNINGS. We start from operating cash flow, strip out swings in working capital (including lumpy pension and deferred-compensation timing), subtract stock compensation as a real cost, and subtract only the capital spending needed to keep the business running; spending in proportion to sales growth (about 5.8 cents per sales dollar, the ten-year average) is treated as growth investment. Non-cash charges such as the $5.6M goodwill write-down in fiscal 2022 are added back. Amortization of acquired customer lists and trade names is only about $1.2M a year, too small to need a separate decay adjustment. Per share, with the January 2025 two-for-one split applied to all years, owner earnings were: 2016 $0.51, 2017 $0.77, 2018 $0.92, 2019 $0.76, 2020 $1.17, 2021 $0.73, 2022 $0.25, 2023 $1.93, 2024 $2.20, 2025 $3.41. Adding back interest paid, to value the business before its lenders, gives $2.01, $2.28 and $3.53 per share for 2023, 2024 and 2025. WHICH YEARS REPRESENT THE BUSINESS TODAY. The business changed in fiscal 2022-2023. A cost squeeze in 2022 (gross margin 17.9%) was followed by price increases that lifted gross margin to 25.0% in 2023, 28.6% in 2024 and 29.5% in 2025, while renewable-diesel purification demand and crystal litter added sales; revenue rose from $305M in fiscal 2021 to $486M in fiscal 2025. Earlier years describe a smaller, lower-margin business, so our anchor is the median of fiscal 2023-2025: $2.28 per share before interest. The nine months to April 30, 2026 suggest the higher level is mostly holding but not rising: sales $364.6M (+1%), gross profit $101.5M versus $108.3M, operating income $49.7M versus $52.6M (-5%), operating cash flow $53.2M versus $55.0M, although the April quarter alone showed operating income up 23%. Owner earnings per share grew about 55% in fiscal 2025; our base case starts at $2.90, about 18% below the fiscal 2025 level, so no acceleration is assumed. HOW LONG THE STORY RUNS. Cat litter is a repeat consumable and the company owns more than forty years of clay reserves at today's usage, so every case runs 40 years and stops; nothing is assumed after that. All cash flows are discounted at 6%. BEAR CASE, $24.58 per share. A repeat of the fiscal 2022 cost squeeze (energy, freight, packaging) or a fall in renewable-diesel purification demand (the annual report notes that changes in renewable-diesel tax credits can affect sales) cuts business cash flow to $0.60 per share for two years; gross margins then settle back toward the 21-24% of fiscal 2020-2021 rather than today's 28-30%, about $1.75 per share for the rest of the reserve life. The business is worth about $336M ($24.22 per share). BASE CASE, $43.99 per share. $2.90 per share a year, flat in dollars, for 40 years: between the three-year median and fiscal 2025, recognizing that pricing has held for three years but gross margin slipped about two points in fiscal 2026. No growth is credited. Further price increases, renewable-diesel growth and crystal-litter expansion are not yet a proven, steady, repeatable pattern, so they are left out. The business is worth about $606M ($43.63 per share). BULL CASE, $60.96 per share. The fiscal 2025 level of $3.53 holds and the company keeps passing cost inflation through to customers as it demonstrated in 2022-2024, about 2% a year for ten years, then flat. The business is worth about $841M ($60.61 per share). DEBT AND CASH. At April 30, 2026 the company owed $40.0M of fixed-rate notes held by PGIM: $5M at 3.95% repaid $1M each May through 2030, $25M at 3.25% repaid $5M a year from December 2027 to December 2031, and $10M at 6.47% due in two $5M installments in April 2032 and April 2033. Because most of it costs well below 6%, we count it at about $38.0M. Cash was $62.9M; holding back $20M to run the business leaves about $42.9M of surplus, so the company has net cash of about $5M ($0.36 per share), added in every case. In each case the business is worth far more than it owes: bear $336M, base $606M, bull $841M against roughly $38M of debt that is more than covered by cash. Interest of about $1.7M a year is covered many times even in the bear years. The company reported it was in compliance with its loan covenants at July 31, 2025. CHANGE FROM OUR PREVIOUS ESTIMATE. Our August 2026 estimate (bear $12.10, base $36.80, bull $80.10, margin-of-safety price $20) used a different discount rate for each case plus permanent growth after year ten, and charged all capital spending as upkeep. We now use a single 6% rate, limit every case to the forty-year reserve life with no growth forever, separate growth spending from upkeep, and include the nine months to April 2026. The bear case rises mainly because we no longer apply a 12% rate; the bull case falls because we no longer assume 8% growth followed by 3% growth forever. MARGIN-OF-SAFETY PRICE, $25. This is roughly the bear-case value, so the bear case implies roughly no loss from that price if margins revert to their pre-2023 range. If the business merely holds the base-case level, the gap to about $44 plus dividends of roughly $0.60 per share a year (fiscal 2025 dividends paid of $8.4M) implies over 20% a year if the gap closes within about three years. The bear-to-base spread is moderate for a consumer staple with long-lived reserves, so a deeper discount is not required. WHAT COULD MAKE THIS WRONG. Loss or repricing of Walmart business; a lasting fall in renewable-diesel purification sales; or another energy and freight cost spike that pricing cannot recover quickly would push value toward the bear case. Sustained further price increases or continued growth in crystal litter and purification products would push it toward the bull case. RECONCILIATION NOTES. Diluted share counts before fiscal 2023 were reported on a slightly different basis than later years (a difference of roughly 2%). Per-share values use the fiscal 2025 diluted count of 13.88M; share repurchases of $12.5M in the nine months to April 2026 will have lowered that count slightly, which makes these estimates a little conservative.