Trane Technologies plc (TT) stock intrinsic value fair value estimate & owner earnings analysis

Trane Technologies makes and services heating, ventilation and air conditioning (HVAC) equipment and transport refrigeration (Trane, Thermo King brands) for commercial buildings, homes and trucks/trailers. Since spinning off its industrial business in 2020 it is a pure climate company: 2025 revenue was $21.3 billion, up from $12.5 billion in 2020. A large share of earnings comes from replacement and service of an installed base of long-lived equipment, and firm orders (backlog) ended 2025 at $7.77 billion, up 15% from $6.75 billion. How we measured earnings. We use cash from operations, remove swings in receivables, inventory, payables and other working-capital lines, and deduct stock-based compensation ($86.6 million in 2025) and the part of capital spending needed to maintain the business ($358 million of $383 million in 2025; the rest is treated as growth spending). On that basis owner earnings per diluted share were about $6.48 (2021), $7.40 (2022), $9.22 (2023), $10.90 (2024) and $13.48 (2025). We anchor on the median of 2023-2025, $10.90, because the business has clearly stepped up to a higher margin level since supply-chain disruption faded in 2022, while 2020-2022 reflect COVID and inventory rebuilding; earlier years belong to the pre-spin company. Cash from operations in the first half of 2026 ($1.71 billion versus $1.03 billion a year earlier) supports that higher level, so the base case starts 2026 at $12.50 per share, above the median but below 2025's $13.48. That is a 15% rise from the anchor, below the 24% owner-earnings growth actually delivered in 2025, so no reversal of a slowdown is assumed. Base case (about $250 per share). Year 1 at $12.50, then growth of 5% a year through 2030 tapering to 3% by 2033-2035. We credit this because it is backed by the backlog and by a record we can see: revenue grew about 5% a year from 2016 to 2025 through the 2020 downturn, and the share count has fallen about 1.5% a year, funded from the company's own cash. We do not credit further margin expansion, new products, data-centre cooling demand or share gains, because none of those is contracted or a long-demonstrated process. After 2035 we assume earnings edge down about 1% a year, reflecting that equipment installed base and service persist but competition and cycles erode returns. Bear case (about $105). Owner earnings fall to about $8 in the next year and $7 in the year after, a cyclical downturn like 2020-2021 (the company earned $3.60 in 2020 and $6.48 in 2021), recover only to $8.50 and stay flat, and decline 2% a year after year 10. On top of that we deduct about $3 billion (roughly $13 per share) for the asbestos matter: two former subsidiaries, Aldrich and Murray, are in Chapter 11, and the company has an agreement in principle with the future claimants' representative to fund a $545 million trust, but the committee representing current claimants is not a party and is pursuing claims against the company. We use a payment several times larger than $545 million as the downside. Bull case (about $350). Earnings start at $13.50 (the 2025 level), grow 8% a year through 2030 as the backlog converts and pricing holds, then 5% a year through 2035, and stay flat after that. This is what happens if the business's demonstrated pricing power and the current order book carry through, without new markets. The margin-of-safety price is about $150 per share. Bear-case value is roughly $105 and there is uncertainty around the asbestos resolution and the cyclicality of building and truck-trailer demand, so the margin-of-safety price sits well below the $250 central value. What would make this wrong. A sharp fall in commercial construction or replacement demand that erodes margins back toward 2021-2022 levels, an asbestos settlement far above $545 million, or evidence that 2024-2025 earnings gains were driven by one-off pricing rather than durable mix and service. We could not reconcile pre-2020 working-capital series exactly because of restatements; the valuation relies on 2021 onward.