SOLITRON DEVICES INC (SODI) stock intrinsic value fair value estimate & owner earnings analysis

Solitron Devices is a small West Palm Beach, Florida maker of high-reliability power semiconductors, power modules and hybrid circuits used mainly in military and aerospace systems, plus (since buying Micro Engineering Inc. of Apopka, Florida in September 2023) electronic assemblies for the medical industry. It has about 2.15 million shares, so every $215,000 of annual cash flow is roughly $0.10 per share. Sales are highly concentrated: ConMed Linvatec (the medical customer served by Micro Engineering) was 33% of fiscal 2026 sales and RTX (Raytheon) 27%; nine customers made up 91%. Fiscal years end in February. What the business earns. We measure the cash the owners could take out each year: operating cash flow, with working-capital swings removed, less stock compensation and the capital spending needed to keep the plants running. On that basis earnings per share were -$0.66 (FY2019), -$0.26 (FY2020), $0.67 (FY2021), $0.76 (FY2022), -$0.91 (FY2023), $0.58 (FY2024), $0.79 (FY2025) and $1.05 (FY2026). Two judgement calls matter. First, the $4.2 million purchase of the West Palm Beach plant (2021) and the $1.75 million purchase of Micro Engineering's building (2024) replaced rent and were one-off real-estate purchases, so they are not treated as ongoing maintenance spending; the mortgages that funded them are subtracted as debt instead. Second, FY2023 was distorted by the move into the new plant (sales fell to $6.4 million and $2.2 million was spent fitting out the fab) and is left out of the earnings base. Changes in the Micro Engineering earn-out are treated as part of the purchase price, not operating cost, and the earn-out still owed is subtracted as debt. Interest and dividends on the company's investments are taken out of the operating stream because those investments are counted separately. Earnings base. We value the business as it exists now, Solitron plus Micro Engineering in owned buildings, so the base is the median of FY2024-FY2026: about $0.83 per share (roughly $1.75 million a year) of cash before interest. That window is short and FY2024 includes only half a year of Micro Engineering, but the result (about $1.75 million) is close to what the fiscal 2021-2026 record shows apart from the relocation year. The company has paid almost no cash income tax because it is using past losses; about $1.33 million of tax assets remain, and every case charges tax at about 25% once they are used up, which they will be within about two years. Near-term path. Cash before interest grew about 22% in FY2026. Year one of the base case assumes a larger rise to about $3.4 million, and the reason is in the filings: backlog rose 51% to $27.3 million at February 28, 2026, with 54% due to ship within twelve months, including a large AMRAAM missile program order; first-quarter fiscal 2027 sales doubled to $5.44 million with $1.54 million of operating profit (nearly all of FY2026's full-year $1.62 million); and Micro Engineering won another $5.04 million order in July 2026. Those are orders in hand, not forecasts. Base case ($10.68 per share). FY2027 about $3.4 million of cash before interest from the backlog, FY2028 about $2.4 million as the rest of the backlog ships, then FY2029-FY2031 held at the FY2026 level of about $2.14 million. That hold rests on RTX's AMRAAM orders: a $3.5 billion lot in July 2025 and, on September 25, 2026, a multi-year AMRAAM contract worth up to $20.7 billion over five years (not yet fully funded by Congress). After that, earnings return to the $1.75 million base with no growth, for 30 years in total. We credit that long life because Solitron has been making qualified parts for long-lived defense programs since 1959, and replacing a qualified part is slow and costly for the prime contractors. We give no credit for a higher AMRAAM rate, new products, more acquisitions or better margins; none of these is in hand. Business worth about $23.1 million. Bear case ($4.53 per share). The backlog still ships in FY2027 at lower margins (about $2.3 million), but then the two big risks named in the filings happen together. Micro Engineering loses much of its ConMed Linvatec business: the filings show no long-term supply contract, and the earn-out tied to those customers ends in September 2026. Defense orders also go through a dry patch like the one in FY2019-FY2020, when the company lost money. Cash before interest falls to $1.25 million, then $1.0 million, with one year at zero, and the story is cut off after 15 years. Business worth about $9.9 million. Bull case ($15.64 per share). The company's own levers work: the strong first-quarter margin partly holds, FY2027 reaches about $4.3 million, and the multi-year AMRAAM contract keeps cash before interest near $3.4 million through FY2031. After that it settles at about $2.4 million, a little above FY2026's actual result, for 40 years. Business worth about $33.8 million. Debt. At February 28, 2026 the company owed $3.77 million on two Bank of America mortgages and an estimated $1.12 million (as of May 31, 2026) of remaining Micro Engineering earn-out. The larger mortgage (originally $2.94 million) carries a fixed 3.8% rate and comes due April 15, 2031, with a balloon payment. That cheap rate, net of the slightly above-market Apopka loan, is worth about $0.19 million to shareholders, and in every case the company's cash and cash flow can cover the roughly $1.7 million balloon. The $1.4 million Apopka mortgage at 6.39% matures May 31, 2034. Against this, it held $3.9 million of cash and a $1.65 million interest-paying stake in an investment fund (carried at cost and not easily sold), less about $1.0 million kept to run the business. Net debt is about $0.13 million (about $0.06 per share). So: bear, business $9.9 million, owes a net $0.1 million, worth $9.7 million; base, $23.1 million less $0.1 million = $23.0 million; bull, $33.8 million less $0.1 million = $33.7 million. Interest of about $0.2 million a year is easily covered in all three cases. Change since our previous estimate. Our August 2026 estimate put the base case at $6.29. It is higher now for three reasons: the first-quarter fiscal 2027 results and July order confirmed that the bigger backlog is turning into sales and profit; RTX's multi-year AMRAAM contract was signed in September 2026; and we now use one fixed discount rate for every company and reflect risk only through the spread between the cases. Two changes push the other way: we now charge future income tax once the tax assets run out, and we subtract the earn-out still owed. During fiscal 2026 the company also sold about $0.8 million of new stock, lifting the share count about 3%, which is reflected in the per-share figures. Margin-of-safety price ($6.00). From $6.00, if the shares rose to the base value of about $10.70 within three years, the base case implies about 20% a year. The range between the cases is wide: two customers make up 60% of sales, orders come in lumps, and the share count is small. So the margin-of-safety price is set well below the base case and only about a third above the bear case, with no weight on the bull case. What could make this wrong. On the downside: losing ConMed Linvatec or a major RTX program, or another relocation-style disruption. On the upside: AMRAAM output really doubling, as the Air Force has requested, for many years. The company has also hired an investment banker to explore strategic alternatives, which could include a sale; we put no value on that. Data note: no audited filings before fiscal 2019 were available to us, because the company caught up on several years of late reports in 2021, so the record is shorter than we would like.