Sixth Street Specialty Lending, Inc. (TSLX) stock intrinsic value fair value estimate & owner earnings analysis

Sixth Street Specialty Lending is a business development company: it lends to middle-market companies, mostly through floating-rate loans, and pays most of its income out to shareholders. Because a lender's cash flow statement is dominated by loans bought and repaid, we measure earnings differently from an ordinary company. We use net investment income after taxes (interest and fee income less all expenses, including the fees paid to its external manager) plus realized gains and losses on investments. Unrealized mark-to-market changes are left out. On that basis earnings per share were about $1.77 in 2017, $2.08 in 2018, $1.97 in 2019, $2.15 in 2020, $2.20 in 2021, $2.34 in 2022, $2.45 in 2023, $2.48 in 2024 and $1.71 in 2025. The 2017 to 2019 figures are derived from the 2019 annual report's statement of operations. What drives the value: the company has shown that this model recycles capital without eroding it. Net asset value per share at year-end stayed between about $15.15 and $17.16 from 2015 through 2025, while earnings of roughly $2 a share were paid out rather than retained. Net asset value was $16.98 at the end of 2025 and $16.24 at June 30, 2026. That steady record is the evidence we rely on for earnings persisting, and it is the only growth-like credit we give. We assume no growth in earnings per share in any case. Share count rose from about 60 million to about 94 million between 2017 and 2025 through new equity issuance, which we do not treat as growth in per-share earnings. What changed in 2025 and 2026: 2025 earnings fell to $1.71, a 31% decline from $2.48 in 2024. About $0.52 per share of that decline came from realized losses of $48.9 million, chiefly $31.1 million on non-controlled investments and $16.3 million on investments in controlled affiliates; net investment income alone was $2.23 per share versus $2.39. More important for the outlook, pre-tax net investment income for the first half of 2026 was $83.2 million versus $111.5 million in the first half of 2025, and $42.2 million in the second quarter of 2026 versus $52.1 million a year earlier. Two consecutive quarters running at that lower level lead us to move our starting level down rather than rely on the multi-year median of about $2.15. The quarterly filing data do not tell us why, so we do not assign a cause. In the annual report the portfolio table totals $3,323.3 million against $3,539.2 million a year earlier, so a smaller portfolio may be part of the story. The same table shows the non-accrual line at $68.8 million (2.1%) at the end of 2025 versus $129.1 million (3.6%) a year earlier, which cuts against a simple story of worsening credit. Base case: earnings of $1.75 per share, close to the current run rate of roughly $1.70 after tax, with realized gains and losses averaging near zero over the 2017 to 2025 record. That level is held flat for ten years and then fades in a straight line to zero over a further ten years. We stop at twenty years because our record of results does not extend far beyond about a decade, and nothing we can name supports earnings beyond that. Discounted at 6%, this is worth about $16.46 per share. Our base assumes earnings of $1.75 for the coming year against $1.71 achieved in 2025, which is slightly above the trailing figure. The reason is dated and specific: the 2025 total included the $48.9 million of realized losses described above, and without them net investment income was $2.23 per share; our base does not assume those losses recur. Bear case: the current run rate continues, and realized credit losses at the 2025 pace of about $0.52 per share recur, giving earnings of $1.20 per share. That is held for ten years and then fades to zero over five more years, for a value of about $10.00 per share. The company uses borrowed money, and the 2025 loss on controlled affiliates shows that individual loans can go badly wrong, which is why the bear case carries the losses. Bull case: earnings return to about $2.15 per share, the median of the nine-year record and a level reached or exceeded in every year from 2020 to 2024. That level is held ten years and fades over ten more, for about $20.22 per share. We do not credit growth from new markets, new products or a larger loan book, since none is secured. No debt is subtracted from these values. Earnings are already after interest expense, so leverage is reflected in the earnings and in the bear case. Balance-sheet cash is not added on top. The figures compare with the $16.24 net asset value per share at June 30, 2026, so the base case is roughly at book value. What would make this estimate wrong: a further drop in net investment income below the first-half 2026 pace, or a return of large realized losses, would move value toward the bear case. Conversely, our base would be too low if second-half 2026 income returns to the 2024 level. We could not confirm from the filings what caused the 2026 decline in income. Margin-of-safety price: about $10.00 per share, roughly the bear-case value and about 39% below our base value. We think a moderate margin is needed because a lender's earnings depend on loan losses and rates.