UTAH MEDICAL PRODUCTS INC (UTMD) stock intrinsic value fair value estimate & owner earnings analysis

Utah Medical Products makes niche devices for childbirth and newborn care (fetal-monitoring accessories, intrauterine catheters, neonatal catheters, Deltran blood-pressure-monitoring kits), the Filshie permanent-contraception clip (26% of 2025 sales), and contract-manufactured components for other device companies. It has no borrowings and $87.5 million of cash at June 30, 2026, about $27.50 per share. Total liabilities at year-end 2025 were only $3.3 million, all operating items. A large part of what each share is worth below is that cash. The rest is a smaller, steadily profitable operating business that has just been through a sharp step down. WHAT HAPPENED: Sales peaked at $52.3 million in 2022 and were $38.5 million in 2025. Two customers explain most of it. PendoTECH, a drug-manufacturing sensor customer, bought $11.6 million (22% of sales) in 2022 and was shut off in 2025. A China distributor of Deltran kits cancelled the last shipment of its 2025 order. Together they were $2.5 million (6.4%) of 2025 sales and will be zero in 2026. First-half 2026 sales were $17.25 million against $19.66 million a year earlier (down 12.3%). Excluding the lost customers, the first-half decline was about 2.8%: domestic sales of other devices (mostly neonatal) and, in the second quarter, domestic Filshie sales ($843 thousand against $1,106 thousand) were weaker. Management has cut its 2026 outlook from roughly flat to a 10-13% sales decline. Our earlier description of Filshie as steadily eroding does not match the filings: in 2025 U.S. Filshie sales rose 11% and clip volume 12%, while sales to overseas facilities fell 16% and to overseas distributors 23%. Reported earnings per share will look better in 2026 because the amortization of acquired intangibles falls from $2.1 million to about $0.4 million. That is a non-cash item and does not change our figures. Our previous estimates (bear $43, base $60, bull $79) were built on a different basis and are not comparable with these. HOW WE MEASURE EARNINGS: We use cash from operations, less working-capital swings, stock compensation and capital spending needed to maintain the business (growth spending is set aside where sales grew). On that basis owner earnings were $13.6 million in 2025 ($4.21 a share) and $16.1 million in 2024. About $2.8 million of the 2025 figure was interest on the cash pile. We remove its after-tax portion from the operating stream and count the cash itself, so it is not counted twice. Operating owner earnings were $11.4 million in 2025, down 15.4% from $13.5 million in 2024. For 2026 we use $9.6 million ($3.02 a share): first-half cash operating profit of $6.1 million (operating income plus depreciation and amortization) was 22% below the prior year, and we assume the second half matches the first. That is a 15.9% fall, no better than the 2025 trend, and it rests on reported results, not a rebound. We anchor on the post-loss level rather than the 2021-2023 years ($19-22 million), which describe a business that still had PendoTECH. The 2017-2019 years are distorted by a one-time U.S. transition tax and are excluded. Capital spending ($371 thousand in 2025) has run below depreciation ($826 thousand); we did not adjust for this, which is worth roughly $0.10-0.15 a share. BASE CASE, $59.49 a share: Operating earnings slip 1.5% a year through 2036 (the ex-lost-customer record is roughly flat in 2025 at +0.7% but -2.8% in early 2026, and fixed costs magnify small sales declines) and 3% a year from 2037 to 2051, after which we credit nothing. We give no credit for new biopharma OEM customers management hopes to win, price increases (none planned for 2026), acquisitions, or relief from tariffs (which cut first-half gross margin by 0.9 points), since none is contracted or proven. The operating business is worth $106.8 million ($33.56 a share) and the company owes nothing, so the difference is its excess cash of $25.93 a share (we keep $5 million for operations). BEAR CASE, $46.39 a share: 2026 earnings of $9.0 million (second-half profits about 6% below the first-half level), then a 4% a year decline through 2036 as overseas Filshie sales (down $1.2 million in 2025) keep shrinking, partly offset by U.S. growth. In 2029 a downturn like 2020 hits (owner earnings per share fell about 16% from 2019 to 2020 during the shutdown) and does not recover, and from 2037 earnings decline 5% a year through 2046, when the story ends. We also charge a further $4 million in 2028 for the Filshie product-liability suits, on top of the $1.4 million of legal costs already expensed in 2025 and the less than $1.6 million expected in 2026. As of March 2026, 15 of 19 courts had dismissed the suits, but four courts remain unresolved, including the Connecticut state-court cases, and their outcome cannot be sized from outside. The operating business is worth $68.7 million ($21.58), it owes nothing, and net cash plus the litigation charge ($25.93 less $1.12) bring the total to $46.39. BULL CASE, $73.83 a share: 2026 earnings of $10.0 million, then 2% a year growth through 2036 and flat to 2051. The only growth credited comes from U.S. direct Filshie sales, a business UTMD took over in February 2019 (up 11% in 2025 and 10.7% in the first half of 2026, although the second quarter alone was down). We credit nothing for neonatal devices, which grew 16% in 2025 but fell in early 2026. Operating value is $152.5 million ($47.90), it owes nothing, and cash adds $25.93. HOW WE ARRIVED AT THE MARGIN-OF-SAFETY PRICE, $32.00: We are fairly sure of the cash and the lack of debt, since both are on the balance sheet, and moderately sure of the earnings level, since the customer losses are known and half the year is reported; we are less sure of what the base business does from here, because it is shrinking at the edges. The worst plausible outcomes are a mass-tort loss on Filshie (the suits are still unresolved in four courts), a further customer loss like PendoTECH (OEM sales have swung by double-digit percentages before), or management spending the cash pile on a poor acquisition, which it says it remains alert to; no acquisition is pending. The structure would survive the first two because there is no debt and the cash is twenty-six times total liabilities. A bad acquisition is the one outcome that could destroy the cash and is not modeled. If the operating business proved worth nothing, the shares would still be worth about $26 in cash. If our earnings level is 25% too high, the base would fall by roughly $8 a share. At $32.00 the price is only about $6 a share above the cash for a business we estimate earns about $3 a share today. The price assumes a holding period of about three years, during which the company pays $1.24 a share a year in dividends. Even in the bear case, a three-year holding period from that price implies roughly a 20% annual return. The margin-of-safety price is not higher because the business has been shrinking and the cases cannot rule out a lower outcome than our base. WHAT WOULD MAKE US WRONG: A stabilization in sales (flat second half versus first half) with new OEM wins would lift the operating value toward the bull case; continued 3-5% annual declines in the remaining product lines, loss of Filshie regulatory or manufacturing continuity, or an adverse verdict in Connecticut would push toward the bear. We could not reconcile management's March statement that sales would be flat in 2026 with the first-half results; we used the actual results.