RUSH ENTERPRISES INC \TX\ (RUSHA) stock intrinsic value fair value estimate & owner earnings analysis

Rush Enterprises is the largest network of commercial truck dealerships in the United States, selling and servicing heavy- and medium-duty trucks primarily under the Peterbilt brand (through its manufacturer relationship with PACCAR) and the International brand (Navistar), along with Hino, Ford, Isuzu and, more recently, the electric-truck maker Battle Motors. About a third of revenue comes from parts and service work, which is a far steadier, higher-margin business than new truck sales because trucks need maintenance regardless of where the freight cycle sits. The rest of revenue comes from cyclical new and used truck sales and a smaller, growing lease and rental business. The business is genuinely cyclical: 2021-2022 was a record boom in Class 8 truck orders, while 2023-2025 has been a well-documented freight recession, with new Class 8 truck unit sales down 17.4% in 2025 alone. We built our estimate of sustainable owner earnings from a full swing of that cycle (2019 through 2025) rather than the recent trough or the 2022 peak alone, which produces a normalized level of roughly $2.20 per share, versus $1.80 actually earned in the trough year 2025. A note on accounting: truck dealership inventory is financed through floorplan borrowings. Borrowings from a truck's own manufacturer are classified, by rule, as operating cash flow (not financing), and move in lockstep with inventory. We treated this as a matched pair rather than double-counting it as a real claim on cash - only the net swing after that offset is treated as a working-capital timing effect that we strip out of earnings. Borrowings from unaffiliated banks are classified as financing and are not part of operating cash flow at all; that leverage is reflected only in our bear case, not as a balance-sheet deduction from value. Our base case assumes results stay roughly flat in 2026 and 2027, in line with independent industry forecasts cited in the company's own filing showing new Class 8 truck volumes essentially flat in 2026 and softening further in 2027 - we found no basis in the filings for assuming a quick rebound, so we did not model one. From 2028 we assume a gradual return to the business's longer-run growth pattern, aided by continued tuck-in dealership acquisitions and share buybacks, plus modest ongoing growth in the recurring parts-and-service base beyond the ten-year forecast. That parts-and-service annuity, together with a dealership network whose facilities and inventory are continuously renewed out of spending already charged against earnings, is why we support a value for the business beyond year ten rather than assuming it fades to nothing; that stretch nonetheless makes up roughly two-thirds of our base-case value, which is worth knowing. Our bear case assumes the freight downturn does not bottom as management currently hopes but instead extends for a couple more years, consistent with the same industry forecast showing 2027 truck volumes below 2026's already-depressed level, with no further margin support from aftermarket growth and a slower eventual recovery. Our bull case is built around the business executing on levers it already controls - continued accretive dealership acquisitions, market share gains, growth in the more stable lease and rental fleet, and an early lead in servicing electric and alternative-fuel trucks through the Battle Motors relationship - rather than any assumption about a stronger freight market. The margin-of-safety price includes a meaningful margin of safety given the cyclicality here. Confidence in that price would increase once Rush's own quarterly results show its parts-and-service profitability (a metric management itself tracks closely) stabilizing or improving, confirming the freight downturn has genuinely passed rather than deepening further.