Turning Point Brands, Inc. (TPB) stock intrinsic value fair value estimate & owner earnings analysis

WHAT THE BUSINESS IS Turning Point Brands sells nicotine products and smoking accessories in the United States and Canada through two segments. Zig-Zag distributes Zig-Zag rolling papers, cigarette tubes and cigar wraps under long-running distribution and license agreements with Republic Technologies (which also makes the papers), plus some cigars. Stoker's makes Stoker's moist snuff and loose-leaf chewing tobacco (the loose leaf is made for it by Swedish Match in Owensboro, Kentucky) and, increasingly, modern oral nicotine pouches: its own FRE brand and ALP, which is sold through a 50/50 joint venture with Last Country Ventures formed in late 2024. Modern oral is now the heart of the story. It made up 48% of sales in the second quarter of 2026, up from 26% a year earlier, with quarterly modern oral sales of $68.4 million, up 128%. The older Zig-Zag business is shrinking: its sales fell 7.2% in 2025, and cigar-wrap margins were hurt by tariffs. HOW WE MEASURED EARNINGS We start from cash generated by operations, strip out swings in working capital, and subtract stock compensation and the capital spending needed to keep the business running. We also subtract the joint-venture partner's half of ALP's profit, because the company's cash flow statement includes all of ALP's cash even though half of it belongs to the partner ($10.0 million in 2025 and $9.0 million in the first half of 2026 alone). The vapor distribution business was sold in 2024, so we measure the company as it exists now, from 2022 onward. On that basis owner earnings per share were $1.99 in 2022, $2.05 in 2023, $2.79 in 2024 and $3.44 in 2025. Earlier years included the vapor business, and 2019 was distorted by vapor inventory write-downs, so they are not used. Our starting level is the middle of the 2022 to 2025 range, about $48 million a year. That is roughly $2.40 a share on today's roughly 20.2 million diluted shares, which rose after a $97.5 million stock sale in 2025. Two accounting choices lower the result. Most of 2025's $13.5 million of capital spending, part of which went to building US pouch manufacturing, is treated as upkeep rather than growth. And no value is given to the company's $26 million of option agreements or its other side investments. WHAT CHANGED IN 2026 Profits have dropped sharply even as sales keep climbing. In the second quarter, selling, general and administrative costs rose 91% to $76.9 million, driven by modern oral sales and marketing spending and higher freight costs. Net income to shareholders was $3.6 million, compared with about $14.5 million a year earlier. By our measure, owner earnings for the first half of 2026 were only about $9 million, against about $30 million a year earlier, while inventory grew by $26 million. In 2025 owner earnings grew 19%. We do not carry that growth forward: every case assumes 2026 comes in well below our starting level. THE CASES (discounted at 6%) Base, $34.66 a share. Owner earnings are about $30 million in 2026, recover to $48 million by the third year and about $55 million by the fifth, then grow about 2% a year to around $61 million by year 10. The recovery rests on things already visible. In 2025 the company earned $64.5 million while modern oral was already about a third of sales. The ALP joint venture is clearly profitable. And gross profit rose 41% in the second quarter, so the pressure on profits is spending, not pricing. Legacy Zig-Zag keeps declining. After year 10, earnings fade 2% a year for twenty more years and then stop. That fade reflects shrinking paper and chewing-tobacco categories, balanced by brands that have lasted more than a century and by FDA premarket rules that make it hard for new products to enter. Bear, $13.35 a share. FRE, which like other nicotine pouches is on the market while the FDA reviews its application, fails to win authorization, or a price war with Zyn, Velo and on! keeps marketing costs high, so modern oral adds little. Earnings then rest on Zig-Zag, Stoker's snuff and chew: about $18 million in 2026, $25 million in 2027 and $33 million in 2028, then falling 5% a year, with nothing assumed after year 20. Debt is not a solvency threat. The $300 million of notes due 2032 are largely matched by $268 million of cash, but refinancing would cost more in this case. Bull, $62.59 a share. Modern oral keeps scaling and marketing intensity comes down. Management raised its 2026 modern oral sales outlook to $260-270 million; we use that only as evidence of the sales trend. Owner earnings reach about $92 million by year 5, around 1.4 times 2025, grow 4% a year to about $112 million by year 10, and then fade 1% a year. MARGIN-OF-SAFETY PRICE The margin-of-safety price is $20, about 42% below the base case. That discount reflects regulatory risk on the pouch products, a shrinking legacy business, and profits that are currently falling. Because the base case depends on the marketing push eventually paying off, the price applies only once operating income is growing again while modern oral sales keep rising. WHAT COULD MAKE THIS WRONG An FDA marketing denial for FRE or ALP. A lasting price war in pouches. The joint-venture partner capturing a growing share of modern oral profit. Or the Zig-Zag distribution agreements, which can be terminated for things like a change of control without consent or a failure to meet performance obligations. The full second-quarter 2026 report was not available for review. We relied on its reported figures and the company's results announcement for the reason costs rose. A $25.4 million increase in other current assets in 2025 could not be explained from the filings we examined, and we treated it as a working-capital timing item.