TRS tops consensus in 2Q 2025 and increases full-year 2025E guidance; strategic review remains on going under new leadership; fair value increases to $35.50 per share (from $32 per share)  

Today, before the market open, TRS reported 2Q 2025 consolidated sales up ~14% to $274.8 million (compared with consensus of $251.3 million), as organic growth of ~8% and ~24% at the Packaging & Aerospace segments more than offset a 7%% decline at Specialty Products (including the Arrow Engine divestiture).  Adj. EBITDA rose ~31% to $47.9 million (versus consensus of ~$40.77 million) while adj. EPS rose ~42% to $0.61 (compared with consensus of $0.47). Adj. free cash flow (FCF) was $16.9 million during the quarter (versus $11.4 million in the prior year period).

TRS ended 2Q 2025, with net debt of $394.4 million, including $30.3 million of cash & debt of ~$394.3 million, and a net leverage ratio of 2.4x (compared to 2.6x at year-end 2024 and its 4.0x covenant) with no significant maturities until 2029.

In terms of capital allocation, the company has repurchased 106,200 shares for ~$2.3 million in the first-six months of 2025 (at an implied purchase price of ~$21.65 per share). The company remains authorized to repurchase an additional ~$65.4 million worth of shares.

On the guidance front, in conjunction with 2Q 2025 results TRS increased its consolidated full-year 2025E guidance, which now calls for consolidated sales growth of 8%-10% (up from 4%-6%) and adj. EPS of $1.95-$2.00 (up from $1.70-$1.85 and compares with current consensus of $1.63; see Exhibit 1 on page 2).

By segment, management anecdotally forecasts top-line growth of “GDP-plus” and “~20%” (organic) at Packaging & Aerospace, respectively.  Adj. EBITDA margins are expected to “expand slightly” at Packaging and improve ~400 bps year-over-year at Aerospace. Specialty Product segment sales, which are currently comprised of the Norris Cylinders business following the Arrow Engine divestiture in January 2025, are projected to grow in the “mid-single digits” with margins remaining roughly “flat to slightly up” year-over-year. 

On this morning’s conference call, newly appointed CEO (as of June 2025), Thomas Snyder, formerly of Silgan Holdings (NYSE: SLGN), indicated that the previously announced portfolio review remains on-going (although the immediate focus remains on driving operational improvements). 

Our base case fair value estimate for TRS increases to $35.50 per share (from $32 per share), reflecting a blended multiple of ~9.5x on 2026E adj. EBITDA of ~$188 million, projected net debt of ~$338 million and a fully diluted share count of ~40.1 million (see Exhibit #2 on page 2).

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

GTX raises full-year 2025E guidance, partly driven by a more favorable currency dynamic; mid-point of current 2025E guidance still implies a FCF yield of ~15.5%; fair value increased to $14 per share (up from $12 per share)

This morning, before the market open, GTX reported 2Q 2025 sales up 3% (on both a reported & constant currency basis) to $913 million as strength in gasoline & commercial vehicle verticals offset weakness in diesel and replacement products. Adj. EBITDA rose more than 2.5% to $154 million while adj. free cash flow (FCF) roughly doubled year-over-year to $121 million. GAAP net income improved more than 35% to $87 million (on 230 bps of margin improvement to 9.5%).

On the capital allocation front, GTX repurchased an additional $22 million worth of stock during the quarter and continues to have $198 million remaining on its existing buyback authorization.  At quarter end, GTX’s net leverage ratio was 1.99x (along with no significant debt maturities until 2032). The company’s near-term leverage target remains ~2.0x.

In terms of guidance, the company increased its initial full-year 2025E outlook (see Exhibit #1 on page 2), which now calls for full-year 2025E sales of $3.4-$3.6 billion (up from $3.3-$3.5 billion) with GAAP net income and adjusted EBITDA of $233-$278 million (up from $209-$254 million) and $590-$650 million (previously $545-$605 million), respectively. Cash flow from operations is projected to be $370-$450 million (previously $357-$447 million), resulting in adj. free cash flow (FCF) of $330-$410 million (up from $300-$390 million).  (Importantly, we highlight that, at the midpoint, management’s FCF outlook implies a current yield of nearly ~15.5%; see Exhibit #2 on page 2).

As an ancillary aside, earlier this week BNP Paribas Exane initiated coverage of GTX, the first, in terms of formal institutional sell-side attention (but not likely the last, in our view), with a Buy rating and a $14 price target; the investment firm’s bullish stance was, per reports, underpinned by the company’s “robust profitability, FCF conversion and clear commitment to capital returns” (We note that this development comes on the heels of GTX having been added to the Russell 2000 Index, as of the market close on June 27^th.)

Underlying assumptions include light & commercial vehicle production being down 3% to flat, a Euro/Dollar exchange rate of 1.16 (versus previous guide of 1.05  and compared with 1.08 in 2024), RD&E investments and capital expenditures at 4.2% of sales (a slight step down from prior 4.6% projection and ~4.5% in 2024) and 2.5% of sales, respectively (of which ~50% and 25% will be focused on zero emission technology). 

On the long-term capital allocation front, as previously articulated, GTX intends to return of “75% or more” of adj. free cash flow (FCF) to shareholders, primarily via dividends and share repurchases.  Currently, the company pays a $0.06 per share quarterly dividend (or ~$50 million annually) and is authorized to repurchase an additional $198 million of stock (after utilizing ~$52 million of its $250 million program in 1H 2025). 

In terms of the longer-term outlook, on which we remind investors that management has solid visibility (with ~80% of sales over next 5-years having already been award by its OEM customers and a historical win rate on new business of greater than 50%), we broadly concur with management’s contention that the core turbocharger business is likely to be larger in 2030 than it is today and that GTX could generate free cash approximating the company’s current market capitalization over the next five years.

Anecdotally, on this morning’s conference call management indicated that its zero-emission efforts continue to gain traction, particularly in China, and that they see the potential for its nascent, at least for Garrett, foray into  the large turbo market (i.e., backup power for data centers as well as marine applications) as potentially generating incremental sales in the “several hundreds of millions” over the next 3-5 years.

Our base case fair value estimate for GTX increases to $14 per share (up from ~$12 per share), reflecting an 8.5x multiple on our 2027E adjusted net income forecast and a fully diluted share count of ~179 million (see Exhibit #3 on page 2).

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

Close Coverage of APi Group (APG) with Shares Trading roughly In-Line with our Fair Value Estimate

For context, shares of Api Group (NYSE: APG) appreciated ~55% (outperforming the S&P 500 and Russell 2000 indexes by 49% and 58.5%, respectively) since our most recent initiation in October 2024.

That said, with shares trading roughly in-line with our fair value estimate (and the impending 3-for-2 stock split) we prefer to maintain a disciplined and close coverage of APG.

As always, we will continue to monitor the shares for an opportunity to re-recommend if valuation shifts or more tangible steps toward potential strategic alternatives materialize. 

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

GTX joins the Russell 2000 Index; mid-point of initial/current 2025E guidance, still implies a nearly 16% FCF yield

Yesterday, GTX announced its addition to the Russell 2000 Index, as of the market close on June 27^th.  (Anecdotally, while this clearly a positive development from an institutional ownership perspective we note that management also remains keen on securing/attracting some formal sell-side research coverage.)

Recall, in conjunction with 1Q 2025 results (reported in May), the company reaffirmed its initial full-year 2025E guidance(see Exhibit #1 on page 2), which is based on the assumption that industry fundamentals remain relatively anemic and calls for full-year 2025E sales of $3.3-$3.5 billion with GAAP net income and adjusted EBITDA of $209-$254 million and $545-$605 million, respectively. Cash flow from operations is projected to be $357-$447 million, resulting in adj. free cash flow (FCF) of $300-$390 million.  (Importantly, we highlight that, at the midpoint, management’s FCF outlook implies a current yield of nearly ~16%; see Exhibit #2 on page 2).

Underlying assumptions include light & commercial vehicle production being flat to up 2%, a Euro/Dollar exchange rate of 1.05 (versus 1.08 in 2024), RD&E investments and capital expenditures at 4.6% (a slight step up from ~4.5% in 2024) and 2.8% of sales, respectively (of which ~50% and 25% will be focused on zero emission technology).  [Note: on a constant currency basis, management anecdotally indicated that adj. EBITDA would be flat year over year in 2025.]

On the capital allocation front, as previously articulated, GTX intends to return of “75% or more” of adj. free cash flow (FCF) to shareholders, primarily via dividends and share repurchases.  Currently, the company pays a $0.06 per share quarterly dividend (or ~$50 million annually) and is authorized to repurchase an additional $230 million of stock (after utilizing ~$30 million of its $250 million program in 1Q 2025).  At quarter end, the company had a leverage ratio of 2.1x (with no significant maturities until 2030-2032).

In terms of the longer-term outlook, on which we remind investors that management has solid visibility (with ~80% of sales over next 5-years having already been award by its OEM customers and a historical win rate on new business of greater than 50%), we broadly concur with management’s contention that the core turbocharger business is likely to be larger in 2030 than it is today and that GTX could generate free cash approximating the company’s current market capitalization over the next five years.

Our base case fair value estimate for GTX remains ~$12 per share, reflecting an 8.5x multiple on our 2026E adjusted net income forecast of $257.5 million and a fully diluted share count of ~186 million (see Exhibit #3 on page 2).

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

FTV Completes the Spin-Off of RAL; Initiate Both Post-Spin Entities at NEUTRAL

Distribution: On June 28, 2025, Fortive Corporation (NYSE: FTV) completed the tax-free spin-off of 100% of Ralliant Corporation (NYSE: RAL).  Shareholders of record, as of June 16^th, received one share of RAL for every three FTV shares owned. 

When-issued Trading: For perspective, in the so-called “when-issued” trading market shares of Ralliant (RAL-WI) debuted on 6/25 at ~$47.50 per share (on a daily volume of ~400K shares) and ultimately closed on Friday, June 27, 2025 at $52.98 (on a daily volume of ~230K shares).  Shares of RemainCo (or NewFortive) initially traded at $55.93 per share (on de minimis volume) before ultimately closing at $54.01 per share (with 200K shares changing hands) on 6/27.

Regular-way Trading & Indexation: Shares commence so-called “regular way” trading this morning with Ralliant set to replace Wolfspeed (NYSE: WOLF) in the S&P Small Cap 600 Index as of the open on July 1^st while post-spin Fortive will remain in the S&P 500 Index. (Separately, RAL announced a new $200 million share repurchase authorization while RemainCo recently approved a 20 million share repurchase program; both companies have indicated returns to shareholders will be a priority in terms of post-spin capital allocation with M&A seemingly taking somewhat of a back seat.)

Updated 2Q 2025 Guidance: Per management, “Since our last earnings call, we have experienced increased pressure on tariff-related pricing and customer demand driven largely by heightened uncertainty in trade, healthcare and government spending policy. This created headwinds for revenue and core revenue growth that built late in the second quarter. As a result, we now estimate our second quarter revenue and core revenue as flat to slightly down across new Fortive, with the Precision Technologies segment, now Ralliant, declining mid-single digits as expected. Despite these headwinds, our teams are leveraging the Fortive Business System to drive results, and we estimate second quarter consolidated adjusted EPS near the mid-point of our previous guidance range.”  Notably, management’s previous guidance called for 2Q 2025 EPS and adj. EPS of $0.44-$0.49 and $0.85-$0.90, respectively (compared with the current consensus estimate of $0.85 per share).   

Pre- & Post-spin Recommendations: Following our initial pre-spin NEUTRAL recommendation earlier this month, shares of consolidated/pre-spin FTV rose ~0.5% (underperforming the S&P 500 and Russell 2000 indexes by ~2% and ~1%, respectively). 

For our part, we continue to think that beyond the standard rationale of increased strategic focus, reduced complexity, improved capital allocation and allowing investors to better focus their investment dollars this transaction can be distilled into the separation of a recurring revenue business (i.e., the reaming FTV parent at ~50% of sales) from a more cyclical (at least from a top-line perspective) one (i.e., Ralliant).  That said, while our current calculations, which are based on management guidance/commentary and peer/M&A valuations, suggest the transaction will unlock modest value the potential projected upside does not strike us as overtly compelling at this time, particularly considering the increased underlying market volatility/uncertainty that was alluded to in management’s aforementioned guidance commentary; thus, we are maintaining a NEUTRAL initial stance on shares of both post-spin FTV and RAL (but we will monitor shares to identify a more potentially more compelling entry point over the next few weeks).  To that end, while historical precedent would suggest that the aforementioned dichotomy (i.e., recurring parent vs. cyclical spin) typically favors the post-spin parent we would postulate that the timing of this transaction could end up being fortuitously timed from Ralliant’s perspective with the business at a cyclical trough (and a potential upturn in late-2025-2026) as well as a solid underlying M&A market (i.e., EMR/NATI, KEYS/Spirent), which could support valuation and potentially portend a consolidation opportunity, albeit down the road (i.e., 2-years).  On the other hand, while post-spin Fortive, despite its strong recurring revenue base (i.e., ~50%), of which ~25% stems from software, strong brands, such as Fluke and ASP, with exposure to industrial and healthcare industry trends along with a disciplined capital allocation strategy (where the near-term focus on share repurchases and dividends albeit with the potential for opportunistic tuck-in acquisitions) will likely be attractive to a relatively wide cohort of investors it could also be possible that the post-spin standalone still suffers from a so-called “conglomerate discount” with two assets that some may reasonably describe as “disparate” (i.e., IOS & AHS).  [On the latter front, we anecdotally discern that while incremental divestitures at post-spin FTV are plausible any significant incremental de-conglomeration measures (i.e., the separation of IOS & AHS) are not seemingly likely on the near- or medium-term horizons (i.e., likely looking out into 2028E or beyond).] 

Applying blended 2026E EV/EBITDA multiples of 15.5x and 16.5x at post-spin Ralliant (NYSE: RAL) and Fortive (NYSE: FTV), respectively, yields fair value per share estimates of ~$62 per share and ~$56 per share, respectively (see Exhibit 1 on page 4).

Please see the Spin-Off Report dated June 12, 2025 for more information as well as the Reference section on pages 5-8.

HOLN Completes the Spin-Off of AMRZ; Initially Rate Shares of SpinCo at BUY and the Post-Spin Parent at NEUTRAL

Today, Holcim AG (HOLN SW), a global building materials concern, completed the tax-free spin-off (on a one-for-one basis) of Amrize, which will begin trading this morning on the New York Stock Exchange under the ticker AMRZ (with a secondary listing on the SIX Swiss Exchange).  Post-spin HOLN, which maintains the current corporate moniker (as well as its listing, domicile & ticker), began trading on June 23, 2025 at 9 a.m. Central European Time (CET). [Simply as a reminder, Amrize/SpinCo represents HOLN’s North American business while RemainCo/Holcim is comprised of the remaining International business (i.e., Europe, Latin America, North Africa & Australia).] 

Initial trading/Reference Prices & Indexation: Initial trading indications suggest, based on our forecasts, that post-spin AMRZ will be trading at ~9.0x, in-line with cement peers but a discount to aggregate and roofing peers, which strikes us as a relatively attractive set-up; thus, we rate shares with an initial BUY.  Post-spin HOLN will be trading at 8.0x, which is a modest premium to International-focused peers, which trade at around 7.5x (in a range of ~6.0x-9.0x); in that context, we assign shares an initial NEUTRAL rating  (see Exhibit 1 on page 3 as well as the Valuation/Recommendation section on page 2 for more details).

In terms of indexation, AMRZ will be included in the Swiss Market Index (SMI) and the Swiss Leader Index (SLI) on its first day of trading and intends to seek inclusion in the relevant U.S. equity indices, most reasonably, in our view, the S&P 500. To that end, management contends that the dual listing will not preclude its inclusion in the S&P 500 and that it meets other ancillary qualifying criteria, such as a domestic headquarters (in Chicago), although the concentration of trading volume remains to be seen (but doesn’t strike us as something that will be a material impediment).  Post-spin parent, HOLN, will remain in both the SMI and SLI indexes. 

Pre- & Post-Spin Valuations / Recommendations:  Following our initial pre-spin BUY recommendation earlier this year, shares of consolidated/pre-spin HOLN appreciated ~11% (outperforming the S&P 500 and Russell 2000 by ~5.5% and nearly 13%, respectively).

Early indications suggest AMRZ will debut at ~$50 per share in initial trading, suggesting that the stock is being valued, based on our forecasts, at ~9.0x 2026E EBITDA, which is in-line with cement peers, such as Eagle Materials (NYSE: EXP) and CRH plc (NYSE: CRH) but a discount to aggregate peers, such as Martin Marietta Materials (NYSE: MLM) and Vulcan Materials (NYSE: VMC), which currently trade at ~14.5x, as well as its primary roofing peer, Carlisle Cos. (NYSE: CSL), which trades at ~11.5x. For our part, we think that, in terms of valuation, it is prudent for investors to value AMRZ on a blended basis based on the standalone company’s specific end-market exposures, including aggregates, cement (i.e., Buildings Materials) and roofing (i.e., Building Envelope).  To that end, we apply a blended multiple of ~11.5x (previously 12x) to our 2026E EBITDA forecast, based on a 14.0x multiple (previously 14.5x) for the Aggregates business (a modest discount to MLM & VMC at 14.5x), a 9.0x multiple for Cement (previously 10x but roughly in-line with EXP & CRH) and 11x for Roofing (previously 12.0x), a modest discount to Carlisle Cos. (NYSE: CSL), which, all told, yields a total segment value enterprise value of $41.85 billion or ~$66 per share (see Exhibit 1 on page 2). Given the implied upside to our fair value estimate we assign an initial rating of BUY. [Note: as it relates to the Swiss listing, our forecast is based on a USD/CHF exchange rate of 0.82, as compared with 0.84 and 0.83 in our last two previous notes but markedly down from 0.88 in April 2025 and ~0.91 at the beginning of the year. For context, by our calculation, every 0.01 change in the FX rate, all else being equal, pushes value up or down by slightly more than 1%.] 

Initial trading for post-spin HOLN, which trades on the SIX Swiss Exchange, suggests that shares are trading at ~8.0x our 2026E EBITDA forecast (when assuming management’s year-end 2025E leverage target of ~CHF 4.4 billion) compared with International-focused peers, such as Buzzi SpA (BUZ IM), Cie de Saint Gobain SA (SGO FP), CRH plc (NYSE: CRH), and Heidelberg Materials AG (HEI GR), which currently trade, on average, at ~7.5x 2026E EV/EBITDA (in a range of ~6.0x-9.0x). Additionally, for its own part, we would note that legacy consolidated HOLN has, over the last 1-, 3-, 5- and 10-year periods, traded at an average forward multiple of 7.0x-8.0x. Further, simply for reference the average forward M&A multiple within the broader/global Building Materials sector has, per Chainbridge Research, been roughly 9.5x since 2015 (in a range of 6.5x-16.5x). For our part, applying a multiple of 7.5x to 2026E EBITDA, yields segment value of ~CHF 28.5 billion or ~CHF 51 per share (see Exhibit 1 on page 2).

Please see the Spin-Off Report dated January 2, 2025 and Updates from 4/25/2025, 5/14/2025 and 6/2/2025, for more information.

APG to join the S&P MidCap 400 index, as of June 24^th; the previously announced 3-for-2 stock split still set for June 30^th 

This morning, it was announced that APG will join the S&P MidCap 400 index (replacing U.S. Steel) effective prior to the market open on Tuesday June 24, 2025.

Separately, just as a reminder, the company’s previously announced 3-for-2 stock split will take effect on June 30, 2025 (after which the share count is expected to be ~415 million).

Recall, at APG’s 2025 investor day in late-May the company provided new 2028E financial targets, including $10 billion-plus in consolidated sales, with an adj. EBITDA margin of 16%-plus and 60% of sales stemming from inspection, service & monitoring (as opposed to project-based) business and ~$2.5-$3 billion of cumulative free cash flow generation (see Exhibit 1).

On the top-line, the company projects mid-single digit organic growth (to ~$8.5 billion) with ~$250 million of annual M&A spend (at ~6x EBITDA). Margins are expected to improve roughly 80 basis points per annum, in line with historical trends (i.e., 2021-2024) and the free cash flow conversion rate is expected to be 75% of adj. EBITDA and 120% of net income (see Exhibits on pages 2 through 5).

For context, for 2025, the company has guided to consolidated sales of $7.4-$7.6 billion, implying 5%-8% overall growth (with 2%-5% being organic) with adjusted EBITDA of $985 million-$1.035 billion, implying constant currency growth of 10%-15%, and free cash flow conversion of ~75% (as a % of adj. EBITDA).

Our base case fair value estimate for Api Group (APG) is revised to $52 per share (from $51 per share), reflecting a blended multiple of ~13.5x on F2026E adjusted EBITDA of ~$1.1 billion along with projected net debt of ~$1.0 billion and a diluted share count of ~287 million (see Exhibit #8 on page 5).

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

Investor day highlights the growing (and significant) value of BATRK’s real estate holdings (i.e., the Battery) with incremental NOI upside of ~$20 million from the Pennant Park acquisition; average valuation for the MLB team is still $3.0-$3.7 billion; 2-year anniversary of split-off is approaching in late-July 2025; fair value estimate increased to $56 (from ~$52.50 per share) 

This afternoon, Atlanta Braves Holdings (NASDAQ: BATRK) held its first investor day as a standalone company, following its split off from Liberty Media on July 18, 2023.

To be sure, the bulk of investor attention typically centers around the potential value of the Atlanta Braves major league baseball (MLB) team, which we note is valued at $3 billion by Forbes, $3.1 billion by CNBC, and $3.7 billion by Sportico (making it among the top-10 most valuable teams with the New York Yankees remining in the top spot at an estimated price tag of more than $8 billion; see Exhibit #1 on page 2). [As an aside, we remain impressed with the perennial playoff contender’s ability to continue to improve both fan engagement/attendance and overall monetization.]

That said, at least from our perspective, today’s event offered an opportunity to highlight/reinforce the growing (and significant) value of the company’s mixed-use real estate holdings, primarily the Battery, which, we note, has improved net operating income (NOI) from $24 million in 2019 (and $6 million in 2017) to $45 million in 2024 and attracts more than 9 million annual visitors (see Exhibit #3 on page 3). 

Moreover, with the April 2025 acquisition of Pennant Park, an adjacent 34-acre site with ~765,000 sq./ft. of office space (at ~84% occupancy) & 2,700 available parking spaces (that were previously leased by the company), for ~$93 million BATRK management forecasts the incremental addition of ~$20 million in NOI (in 2025E).

All told, management estimates the stabilized NOI of its existing footprint at nearly $85 million, which at varying capitalization rates (e.g., 5%-8.5%) yields an internal estimation that the assets could be worth between $1.0-$1.45 billion (see Exhibit #4 on page 4), which compares favorably with our current valuation of ~$750 million (and our previous estimate of ~$550 million).

Anecdotally, in response to investor queries management downplayed the potential for a sale of the team/company in the “near-term” given the numerous avenues of incremental growth opportunities still perceived.  As well, on the topic of a potential split of the team & the real estate to unlock value (given the seeming undervaluation) management highlighted the myriad synergies between the two entities, including, among other things, sponsorships.

Unrelatedly, Sportico is reporting that the Tampa Bay Rays are in talks to be sold to a Florida-based developer, Patrick Zalupski, for ~$1.7 billion, which, if consummated, would represent a ~33% premium to the team’s most recent appraisal by Forbes. 

Our base case fair value estimate moves to $56 per share (up from $52.50 per share), reflecting a ~$52 per share valuation for the Atlanta Braves MLB team, based on a 5.5x multiple of 2025E regular season ballpark sales, a ~$12 per share (up from ~$8.50 per share) valuation for the company’s real estate/development assets (i.e., The Battery Atlanta), reflecting a 7.0% (previously 6.5%) capitalization rate on our stabilized net operating income estimate, and net debt of ~$7 per share (see Exhibit #5 on page 4).

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

WBD to Separate its Cable & Streaming Businesses in a Tax-Free Transaction by Mid-2026

On June 9, 2025, before the market open, Warner Bros. Discovery, Inc. (NASDAQ: WBD), a global media & entertainment company formed by the Reverse Morris Trust merger of WarnerMedia (previously a part of AT&T) and Discovery in April 2022, announced its intention to separate its Streaming & Studios and Global Networks businesses in a tax-free transaction expected to completed by mid-2026, subject to customary conditions, including final Board approval and the receipt of IRS/SEC assurances. The Streaming & Studios business, in which the parent company will retain a 20% stake, will include Warner Bros. Television, Warner Bros. Motion Picture Group, DC Studios, HBO & HBO Max, Warner Bros. Games, Tours, Retail & Experiences as well as existing studio production facilities (in CA and the UK) and the associated properties film & television content libraries while the Global Networks business will include WBD’s entertainment, sports & news brands, including CNN, TNT Sports and Discovery, along with the company’s digital products/properties, including Discovery+ and the Bleacher Report (B/R).

WBD’s current president & chief executive (CEO) David Zaslav is expected to take the helm at Streaming & Studios while WBD’s current chief financial officer (CFO) is expected to take the reins at Global Networks. Beyond the standard rationale, of more focused management and investor bases as well as better tailored capital structures & allocation policies we would note that this transaction’s announcement also comes in the context of Comcast’s decision to spin-off its cable networks business in November 2024 as well as WBD’s December 2024 move to reorganize its business into a holding company structure with two reportable operating divisions: 1) Global Linear Networks (~48% of consolidated sales and ~78% of adj. EBITDA in 2024); and 2) Streaming & Studios, albeit with three reportable segments, including Studios, Networks and DTC (or direct-to-consumer). In terms of guidance, the company has articulated the expectation that its Streaming business was on-track to generating “at least $1.3 billion” in adjusted EBITDA in 2025 and that Studios is “on a path back to their target of at least $3 billion in annual adjusted EBITDA”.

In terms of valuation, the Networks business could be imperfectly compared with AMC Networks Inc. (NASDAQ: AMCX) and EchoStar Corp. (NASDAQ: SATS), which acquired DISH Network in January 2024, as well as other linear network & broadcast peers, such as Tegna Inc. (NYSE: TGNA), Nexstar Media (NASDAQ: NXST), Gray Media (NYSE: GTN), FOX Corp. (NASDAQ: FOXA), Sinclair Inc. (NASDAQ: SBGI), and The E.W. Scripps Co. (NASDAQ: SSP), which trade at ~6.0x 2026E EV/EBITDA. Studios assets, such as DreamWorks, Pixar, Marvel, MGM, Twenty-First Century Fox, Lucas Films and Skydance, have, by our calculation, have historically garnered a low-to-mid teens average multiples (albeit in a wide range of ~10x-37x) while streaming assets, such as Netflix, Inc. (NASDAQ: NFLX), Spotify Technologies (NYSE: SPOT) and Roku, Inc. (NASDAQ: ROKU), trade at nearly 30x (in a range of 18.5x-37.0x).

Applying a ~6.5x blended multiple to 2026E adj. EBITDA yields segment value of ~$67 million. Accounting for corporate costs, capitalized at the segment average, as well as projected net debt yields a preliminary, sum-of-the-parts fair value estimate of more than $26 billion or ~$11 per share (based a diluted share count of 2,450 million).

SMG reaffirms F2025E guidance at an industry forum; reintroduces EPS guidance of “at least $3.50”; maintain $72 fair value estimate

Today, at an annual industry forum, SMG provided its customary mid-quarter update where it reaffirmed its previously articulated F2025E guidance calling for low-single digit growth in its U.S. Consumer business, an adjusted gross margin of ~30% (up 370 bps year-over-year) and adjusted EBITDA of $570-$590 million (implying year-over-year growth of 12%-16%; see Exhibit #1 on page 1). 

Management also reaffirmed its expectation for an additional $75 million of supply chain and costs savings (i.e., gross margin expansion) in F2026-F2027.

F2025 free cash flow (FCF) is still projected to be ~$250 million, including a capital spending budget of ~$100 million, and leverage is expected to fall to near 4.0x by year end (compared with 4.4x at the end of 1Q F2025 and its year-end covenant of 4.75x).  Anecdotally, the company still targets a leverage ratio of ~3.5x in F2027.

Additionally, the company reintroduced formal F2025E EPS guidance of “at least $3.50” (compared with consensus of ~$3.45), which implies a better than 50% year-over-year increase. Notably, the company also reduced its year-over-year dilution expectation to 1 million shares (from 2 million shares).

Interest expense is expected to be ~$30 million lower in F2025E (versus F2024A), which compares with the previous projection of $15-$20 million.

All told, our base case fair value estimate for Scotts Miracle Gro (SMG) remains $72 per share, which assigns de minimis value to its remaining cannabis-related supply asset, Hawthorne, and accounts for corporate costs and net debt (see Exhibit #2 on page 2).

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