RESIDEO TECHNOLOGIES, INC. (REZI) stock intrinsic value fair value estimate & owner earnings analysis

Resideo has two businesses. ADI Global Distribution is a specialty wholesale distributor of professionally installed security, audio-video and low-voltage products, and it now includes Snap One (bought June 14, 2024 for about $1.4 billion). Products and Solutions makes thermostats, security and fire products and water and comfort controls sold under Honeywell Home, First Alert, Braukmann and Resideo, under a 40-year trademark license from Honeywell that runs from the 2018 spin-off. Revenue grew from $4.5 billion in 2016 to $7.5 billion in 2025. What we measure. We value the cash left for shareholders after cash interest, working-capital swings, stock compensation (treated as a real cost) and the capital spending needed just to stand still. On that basis the business earned between $1.69 and $2.21 per share in each of 2021 to 2024, and the middle of that range, about $1.96 per share (roughly $290 million a year), is our starting level. Earlier years were noisier: 2019 was $0.18 and 2020 was $1.26 as the company separated from Honeywell and then met the pandemic. 2025 shows a loss of $7.04 per share because Resideo paid Honeywell a one-time $1,590 million on August 13, 2025 to end the Indemnification Agreement, under which it had been paying Honeywell a share of legacy environmental and other liabilities. We left 2025 out of the starting level because that payment will not recur. The termination changes the shape of the company. It was funded by roughly $1.2 billion of extra borrowing, so total debt was $3,231 million at year-end 2025 and interest expense was $135 million for the year, up $54 million. Each 1 percentage point rise in rates costs about $22 million a year. In exchange, the open-ended payments to Honeywell are gone. We assumed the two roughly offset and did not raise the starting level. In the first half of 2026 operating cash flow was only $3 million against $135 million a year earlier, but roughly $254 million of it went into receivables, inventory and payables, compared with about $26 million a year earlier. Net income was $135 million and revenue grew about 5%, so we read the weak cash flow as working-capital timing and did not lower the starting level. A second claim sits ahead of common shareholders. In June 2024 Resideo sold $500 million of convertible preferred stock to Clayton, Dubilier & Rice to help fund Snap One. It pays 7% in cash or in kind and converts at $26.92 per share. Base and bull cases assume conversion, which adds roughly 19 to 22 million shares to the 149 million outstanding, and we divide by about 170 million shares. The bear case treats it as a fixed claim of about $580 million paid first. On July 30, 2025 Resideo announced it intends to spin off ADI Global Distribution to shareholders. Holders would own both pieces, so we value the combined company. How the debt is divided is not yet known. Base case, $23.0 per share. Earnings stay at about $290 million a year for ten years, then shrink 3% a year afterward. We credit no growth. ADI's branch network and supplier relationships, the brand licence and a record of positive results in each of the last four years support a durable level, but revenue growth, price and mix gains, Snap One synergies and margin gains are not secured, so they are excluded. Last year's underlying earnings growth cannot be measured because of the termination payment; the base case assumes zero growth in year one, which is not above 2024's actual 9% rise. The gradual shrinkage after year ten reflects that the earnings then rest on continued product competition in smart-home devices and distribution, without a named driver behind further increases. Bull case, $30.5 per share. Earnings grow 3% a year for ten years, half the roughly 6% a year revenue growth achieved from 2016 to 2025, then shrink 2% a year. This is what happens if ADI keeps growing at its historical pace and the Snap One business holds its customers. Bear case, $7.4 per share. Earnings fall back to about $170 million, close to the 2020 low of $1.26 per share after allowing for higher floating-rate interest, then decline 3% a year for ten years and 5% a year after. This reflects the $3.2 billion debt load, rate exposure, and the fact that acquired customer relationships and $36 million a year of new Snap One amortization suggest that acquired earning power can erode. After the $580 million preferred claim, little is left for common shareholders. What would make this wrong. Cash generation is only as good as the working capital that supports it: 2022 absorbed $284 million in inventory and receivables. A sharp housing or commercial-construction slowdown, loss of a major supplier to ADI, or trouble integrating Snap One's systems, where the company reports implementation delays, would hit the earnings level. We value the shares at a discount rate of 6%. The margin-of-safety price is $13.5, a discount of about 40% to the base case, because of the leverage, the preferred stock, the cyclicality of building-related demand and the pending separation.