$41.10
$74.90
bear $41.10
base $59.90
bull $74.90
margin of safety $36.00
market price* $100.58
The Toro Company makes turf-care, landscape and underground-construction equipment and is best known for Toro and Exmark mowers, golf-course and grounds equipment, Ditch Witch trenchers and drills, and irrigation products. The Professional segment (golf, grounds, contractors, underground construction, agricultural irrigation) is roughly three-quarters of its $4.5 billion of sales; the rest is Residential (walk-behind and riding mowers, snow throwers, yard tools), sold largely through dealers and big-box retail. Sales have been close to flat for four years ($4.55 billion in fiscal 2023, $4.58 billion in 2024, $4.51 billion in 2025), so this is a mature, cash-generative business rather than a growth story. What the business earns. We measure cash earnings as operating cash flow, minus the swing in working capital (inventory, receivables, payables), minus stock compensation, minus the capital spending needed just to keep the plants and equipment running. Working-capital swings are removed because they are timing, not earning power: Toro's inventory build in fiscal 2022 ($286 million) and the 2022-23 dealer destocking pulled $246 million and $253 million of cash out, and fiscal 2025 released $148 million back. On that basis cash earnings after interest were $397 million in fiscal 2021, $392 million in 2022, $392 million in 2023, $415 million in 2024 and $412 million in 2025, a remarkably steady line. Adding back the roughly $62 million of annual interest (we value the business first and subtract its debt afterward) gives $399 million to $478 million a year since fiscal 2020. We use the middle of the six years from fiscal 2020 to 2025, about $441 million (roughly $4.61 per share on today's 95.6 million diluted shares). Fiscal 2020 is the first full year after the April 2019 acquisition of Ditch Witch's parent, Charles Machine Works, so earlier years describe a smaller company; the window also contains the COVID surge and the destocking years. The $81.1 million Spartan trade-name write-off in fiscal 2025 and the $151.3 million impairment in fiscal 2023 are non-cash and are correctly not charged against earning power, but the fact that Toro has written down acquired assets twice in three years is carried in the downside case. Spending was unusually low in fiscal 2025 ($84 million against a ten-year average of 2.6 percent of sales, about $119 million); using the full-period average would trim that year's figure by roughly $35 million, which the six-year middle value already absorbs. Growth in the last completed year versus the year ahead. In fiscal 2025 cash earnings before interest slipped 0.8 percent in dollars ($474 million versus $478 million) and rose 3.8 percent per share thanks to buybacks. For the base case we assume 2 percent a year, slightly above that last print. The specific, dated reason is Toro's own nine-month report to July 31, 2026: sales are up 7.1 percent ($3.69 billion versus $3.44 billion), net earnings up 19 percent ($290 million versus $243 million), and operating cash flow before working-capital movements up about 7 percent ($435 million versus $407 million). Two percent a year is also below the roughly 2.5 percent a year at which cash earnings grew between fiscal 2021 and 2025, a stretch that included a destocking cycle, so it is proven rather than hoped for. We do not credit new-product launches, share gains, margin expansion from the cost-savings program, or price increases. Debt. At July 31, 2026 Toro owed $962 million (senior notes and its revolving credit facility) against $175 million of cash, a seasonal low point because dealers stock up in spring. At the October 2025 year-end it owed $921 million against $341 million of cash. Since then Toro paid about C$279 million (roughly US$200 million) for Tornado Infrastructure Equipment, a hydrovac manufacturer, closed December 8, 2025 and funded on the revolver. Adding the Tornado price to the year-end net debt of about $580 million, or taking the July 31 balance sheet's $787 million, gives net debt of about $780 million, or $8.16 a share, which we deduct. Roughly $100 million of principal falls due within a year, about $320 million in the third year and $425 million after year five; interest cost has run about 6.5 percent ($62.5 million paid in fiscal 2025), so no adjustment is made to the debt figure. Operating leases (about $116 million) run through operating cash flow and are not counted as debt. We give no credit for Tornado's earnings because the filings do not yet disclose them; that is conservative. Base case: worth about $59.90 a share. Business cash earnings start at $441 million, grow 2 percent a year for ten years (to about $538 million), stay flat in dollars for fifteen more years on the strength of a brand more than a century old and an entrenched dealer network, and after that we assign no value. That gives a business worth about $6.5 billion; it owes about $0.78 billion, leaving about $5.7 billion for shareholders. Bear case: worth about $41.10 a share. Toro's own record sets the downturn. In fiscal 2009, the last deep recession, sales fell 19 percent ($1,878 million to $1,523 million) and net earnings fell 48 percent ($119.7 million to $62.8 million). We assume the same shape starting now: cash earnings at 80 percent of the starting level in year 1, 55 percent in year 2 (about $243 million, still almost four times the interest bill), 70 percent in year 3 and 85 percent in year 4, then settling at 90 percent permanently to reflect lost ground in construction and residential, tariff-cost pressure, and weaker acquired businesses. A second 2009-style episode hits in year 14 (60, 75, then 85 percent), because recessions recur and a story that long should contain more than one. Business worth about $4.7 billion, owes $0.78 billion, leaves about $3.9 billion. Toro's debt stays serviceable throughout this case, and its $898 million of undrawn revolver at the 2025 year-end provides room. Bull case: worth about $74.90 a share. Cash earnings grow 6 percent a year for five years and 3 percent for the next five, roughly the pace the business actually delivered over the last decade (about 6.7 percent a year from fiscal 2016 to 2025, helped by acquisitions), and are then held flat for fifteen years. This is what sustaining the improvement in the nine months just reported would look like. Business worth about $7.9 billion, owes $0.78 billion, leaves about $7.2 billion. What changed since the last analysis. Our earlier figures ($24 bear, $58 base, $93 bull) were built on a different footing and are not comparable. In the business itself, Toro acquired Tornado (adding about $200 million of net debt), nine-month sales and earnings have turned up, and fiscal 2025 cash earnings proved steadier than the headline cash flow suggested. What would make this wrong. Cash earnings of 15 percent less than our starting level with no growth at all would put the shares at about $42. A fiscal 2009-size recession arriving with today's higher debt, a failure to integrate Tornado or other acquisitions, and writing down acquired assets again would hurt more than the bear case assumes. How we arrived at the margin-of-safety price. We are fairly sure of the earnings level: six years of cash earnings between $399 million and $478 million, including two destocking years, and nine months of this year ahead of last. The worst plausible event is a repeat of fiscal 2009; Toro would survive it, since trough cash earnings would still cover interest roughly four times and net debt is under two years of normal cash earnings. If we are wrong on the starting level and on growth together, value is about $42, close to the bear case. The price assumes a holding period of three to five years; over that period Toro pays about $1.50 a share in dividends (about $151 million in fiscal 2025) and repurchased $290 million of stock last year. The margin-of-safety price is $36: at that price fiscal 2025 cash earnings after interest of $4.12 a share would be an 11 percent yield, a recovery to our base case within about three years implies more than 20 percent a year including dividends, and even the wrong-on-two-things value of $42 sits above the price.