Zurn Elkay Water Solutions Corp (ZWS) stock intrinsic value fair value estimate & owner earnings analysis

Zurn Elkay Water Solutions makes the plumbing and water products found inside commercial, institutional and residential buildings: Zurn and Wilkins backflow preventers and valves, Zurn floor and roof drains and grease interceptors, Elkay drinking fountains and bottle-filling stations, sinks, flush valves and faucets, and Hadrian partitions. Products are specified by engineers and architects and sold through plumbing wholesalers and distributors, for both new construction and retrofit. The 2022 merger with Elkay roughly doubled the size of the business, so we measure earning power only from the combined company (2023 onward). Legacy asbestos claims were divested in December 2023 and are no longer an obligation. How we measure earnings. We start with operating cash flow, remove the swings from working capital (receivables, inventory, payables), and subtract stock compensation (a real cost) and the part of capital spending needed just to stand still. On that basis owner earnings were about $176 million in 2023, $225 million in 2024 and $252 million in 2025 ($0.99, $1.29 and $1.47 per share). We use the middle of those three years, about $225 million or roughly $1.31 per current share, as the normal level. 2022 is excluded because it was the merger year, with deal costs and a large working capital drain. About $59 million a year of intangible amortization is a non-cash charge added back automatically; we do not deduct it, but we do not assume the acquired brands grow on their own either. Growth. Owner earnings grew about 12% in 2025. We start the base case well below that, at 3% a year, because the 2023-2025 rise was helped by margin gains and easier comparisons that we cannot treat as repeating. The 3% is credited only for the company's long record of small bolt-on acquisitions paid for from its own cash (Wade and ATS GREASEwatch in 2021, further deals in 2022) and modest, price-and-volume-driven sales growth in a specification-driven product set. Left out: any share gain, new product launches such as the 2025 Pro Filtration line, further margin expansion, and buybacks. Base case, about $27 per share: normal owner earnings of about $1.31 growing 3% a year for ten years, then held flat thereafter because the specified, code-required, installed-base nature of the products and 100-plus-year brands keep the earnings power in place without needing further growth. Bear case, about $13.50 per share: construction and remodeling spending falls (the business is exposed to new construction and to tariff-driven raw material costs, which the company itself flags), owner earnings settle near the weakest recent level, about $1.00, with no growth for ten years, then drift down about 2% a year as acquired product lines age. Debt of about $496 million is modest against roughly $250 million of owner earnings, so leverage adds little additional downside. Bull case, about $36 per share: owner earnings sit at the 2025 level ($1.47) and grow 5% a year for ten years, in line with the roughly 5% sales growth the company delivered in 2023-2025, then stay flat. What would make this wrong: a prolonged commercial construction slump deeper than the 2022-2023 experience, tariff or material cost increases that cannot be passed on, or a large acquisition that destroys value. Note also that 2022 capital spending ($7.6 million) looks unusually low against neighboring years and was taken as reported. The margin-of-safety price is around $17.50 per share, a substantial discount to the base case, given the exposure of building-products demand to the construction cycle.