Q Broadly Tops Consensus in 4Q & Full-Year 2025 and Issues a Largely Above Consensus Outlook for 2026E; Medium-Term Targets Maintained; Fair Value (FVE) Moves to $120 per share 

This morning, before the market open, Qnity Electronics (NYSE: Q), which was  spun-off from DuPont de Nemours (NYSE: DD) on November 1, 2025, reported 4Q 2025 results demonstrating ~8% top-line growth to $1.19 billion (versus consensus of ~$1.15 billion) with similar growth in adjusted EBITDA to $349 million (roughly in-line with consensus).  Adj. EPS were $0.82 (compared with consensus of $0.63).

For full-year 2025, consolidated sales rose ~10% to $4.75 billion (versus consensus of $4.71 billion) with adj. EBITDA up ~11% to $1.4 billion (compared with consensus of $1.395 billion).  Adj. EPS were $3.35 (versus consensus of $2.64 and $2.98 in 2024).

For 2026E, management’s initial guidance (see Exhibit 1 on page 2) calls for consolidated sales of $4.97-$5.17 billion (compared consensus of $5.05 billion) along with adj. EBITDA and EPS of $1.465-$1.575 billion and $3.55-$3.95, respectively (compared with prior consensus forecasts $1.539 billion and $3.12.)  Free cash flow is projected to be $450-$550 million on a capital spending budget of ~$450-$470 million (or ~9% of consolidated sales).   Q’s Board also approved a $500 million repurchase program (representing ~2% of the outstanding shares at current price levels).

In terms of the medium-term financial outlook (i.e., 2025E-2028E; see Exhibit 2 on page 2), Qnity continues to target compound annual organic growth of ~6%-7%, or roughly 200 basis points above the underlying market,  driven by share/content gains, a higher-value mix shift toward areas such as semiconductor fabrication (or “semi fab”) consumables, advanced packaging & interconnects as well as thermal management, along with an adjusted EBITDA CAGR of ~7%-9% (see Exhibit 2 on page 2). 

Our fair value estimate for post-spin Qnity Electronics (Q) is revised to $120 per share based on a ~17x blended multiple of adjusted EBITDA while accounting for corporate costs and projected net debt (see Exhibit 3 on page 3).

Please see The Spin-Off Report dated October 8, 2025 and Updates from 10/16/2025, 11/3/2025, 11/6/2025, 1/15/2026 for more information.

GTX reported broadly in-line 4Q & full year 2025 results; issues 2026E guidance w/ the mid-point of the FCF outlook implying yields of 10%-12%; sees non-auto business ramping in 2027 with Industrial E-Cooling solutions comprising >5% of total sales by 2030 (via a new collaboration w/ Trane); FVE is $21.50 per share

GTX reported 4Q 2025 sales up 6% (or ~1% on a constant currency basis) to $891 million with continued share gains in the light vehicle gasoline space (44% of sales up from 41% in 2018) as well as increased in-roads into commercial vehicle (both on- & off-highway) and industrial sectors. Adj. EBITDA rose ~5.5% to $159 million (on a margin of 17.8%) while adj. free cash flow (FCF) was $139 million. GAAP net income improved 4% to $103 million (on a margin of 9.4%).

For full year 2025, sales were up 4% (or ~1% of a constant currency basis) to $3.584 million (compared with the previous guidance of $3.5-$3.6 billion and its initial guide of $3.3-$3.5 billion) while adj. EBITDA increased ~6.5% to $636 million (compared with its most recent forecast of $610-$650 million and its initial forecast of $545-$605 million).  Free cash flow rose ~12.5% year over year to $403 million (versus its previous guide $350-$420 million and its initial outlook of $300-$390 million).  GAAP net income rose ~10% to $310 million (compared with the most recent guide of $265-$295 million and its original forecast of $209-$254 million).

On the capital allocation front, GTX repurchased an additional $72 million worth of its stock during the quarter (and $208 million for the full year, representing ~8% of the outstanding total shares).  As well, the company has established a new $250 million buyback authorization for 2026E (or ~6.5% of the outstanding shares at current levels). [Anecdotally, the company indicated that as of its earnings call the share count was 189.97 million as compared with the 197.5 million reported for 4Q 2025 and the estimated 190-191 million outstanding at year-end.]   Additionally, the company maintained its $0.08 per share quarterly dividend payout to shareholders (which, we note, was increased from $0.02 per share in 3Q 2025). 

At quarter end, GTX’s net leverage ratio was 1.92x (compared with 1.96x in 3Q 2025 and 2.21x at the end of 2024); the company made a voluntarily $50 million early repayment on its Term Loan in October 2025 and, again, has no significant debt maturities until 2032.   The company’s near-term leverage target remains ~2.0x (balanced against its commitment to returning ~75% of adj. free cash flow to shareholders).

In terms of guidance, the company issued initial full-year 2026E guidance (see Exhibit #1 on page 2) calling for total sales of $3.6-$3.8 billion (versus consensus of ~$3.7 billion) with adjusted EBITDA of $647-$697 million (versus consensus of $665 million). GAAP net income is expected to be $295-$335 million. Cash flow from operations is projected to be $407-$502 million, resulting in adj. free cash flow (FCF) of $355-$455 million.  [Note: at the midpoint, management’s FCF outlook implies a current yield of ~11%, by our calculation; see Exhibit #2 on page 2).

Underlying assumptions include global light and commercial vehicle production being down 1% to up 3% and up 1%-2%, respectively, a Euro/Dollar exchange rate of 1.17 (versus 1.13 in 2025  and 1.08 in 2024), RD&E investments and capital expenditures at 4.2% of sales (roughly flat with 2025 and compared with ~4.5% in 2024) and 2.5% of sales, respectively (of which ~50% and 25% will be focused on zero emission technologies). 

Importantly, looking into 2027, the company announced the launch of a strategic collaboration with Trane Technologies (NYSE: TT), a global HVAC supplier that was spun-off from Ingersoll-Rand and merged with Gardner Denver in an RMT transaction in 2020, to integrate GTX’s “next generation, oil-free, high-speed centrifugal compressors” into TT’s HVAC offerings ranging from “unitary rooftop and modular chillers to large capacity chillers”, which incorporate products/technologies originally developed by GTX for automotive applications (i.e., high-efficiency turbomachinery, oil-free bearings, high-speed electric motors, ultra-high frequency inverters & model-based control software) but that are now being further utilized in a wider range of industrial applications (i.e., data centers).

In terms of tangible results, early testing suggest GTX’s solutions can help TT generate/offer “real world energy savings” of more than 10% (as compared with incumbent solutions).  On the financial front, management expects the collaboration to ramp moving into 2027 and could ultimately comprise ~5% of total revenue by 2030 (with activities being immediately accretive upon production). 

All told, recall that GTX endeavors to generate ~$1 billion in so-called “Zero-Emission” sales by 2030 (at stable corporate margins); in that context, the company intends to hold an Investor Day on May 20, 2026 to “provide additional updates on our long-term strategy and outlook”.

Our base case fair value estimate for GTX is $21.50 per share, reflecting a 9.0x multiple on our 2028E adjusted net income forecast and a fully diluted share count of ~161 million (see Exhibit #3 on page 3).

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

GPC to Separate its Automotive and Industrial Businesses via a Tax-Free Spin-Off in 1Q 2027

On February 17, 2026, before the market open, Genuine Parts Company (NYSE: GPC), a global provider of replacement parts to the auto & industrial sectors that recently disclosed a strategic & operational review (which has been highlighted in the monthly Spin-Off Report Radar publication since October 2025), announced its intention to separate its Global Automotive Parts Group and its Global Industrial Parts Group into two independent, publicly traded companies via a tax-free spin-off that is expected to be completed in 1Q 2027, subject to customary conditions, including final Board approval (although we note that the transaction does not require shareholder approval).  For context, on September 4, 2025, GPC reached a cooperation agreement with activist-investor Elliott Management, who reportedly holds a ~$1 billion stake in the company, which precipitated the addition of two Elliott-back representatives to GPC’s 12-member Board (as well as the retirement of two long-tenured existing Board members).

Currently, GPC operates two business segments: 1) Automotive Parts Group (~63.5% of consolidated sales and ~51.5% of adj. EBITDA in 2025), which operates a global parts & repair network primarily under the NAPA Auto Parts brand (as well as Repco); and 2) Industrial Parts Group (~36.5% of consolidated sales and ~48.5% of adj. EBITDA in 2025), which operates in a fragmented ~$150 billion market primarily under the Motion Industries brand. In terms of guidance, the company currently projects full-year 2026E consolidated top line growth of 3.0%-5.5%, driven by Automotive growth of 3%-5% (comprised of 3%-5% growth in North America and 3%-6% Internationally) as well as Industrial sales growth of 3%-6%.  Adjusted EPS is expected to be $7.50-$8.00 (versus $7.37 in 2025 and $8.16 in 2024).  Operating cash flow is expected to be $1.0-$1.2 billion with free cash flow (FCF) of $550-$700 million (versus $421 million in 2025).  The tax rate for full year 2026E is projected to be ~24%.  Anecdotally, both standalone companies are expected to maintain investment grade credit ratings with the Global Automotive business more focused on internal investments amid a “balanced” capital return program and Global Industrial seemingly more keen on “strategic acquisitions” within a similarly “balanced” shareholder return approach.  Additionally, the company intends to host an investor day to provide the strategic outlooks for both the Automotive and Industrial businesses in 2H 2026. 

GPC’s Automotive Parts Group could be compared with AutoZone, Inc. (NYSE: AZO), O’Reilly Automotive, Inc. (NASDAQ: ORLY), Advance Auto Parts, Inc. (NYSE: AAP), and LKQ Corp. (NASDAQ: LKQ) and Bapcor (ASX: BAP), which, on average, trade at ~12x 2026E EV/EBITDA (in a range of 6x-22x), while the Industrial Parts Group could be compared with Applied Industrial Technologies (NYSE: AIT), Fastenal Company (NASDAQ: FAST), and W.W. Grainger, Inc. (NYSE: GWW), which trade, on average, at ~19.5x 2026E EV/EBITDA (in a range of 15x-27x).  Applying a 7.0x multiple to the lower-margin Automotive business and a ~16.0x to the Industrial business implies segment values of ~$9.2 billion and ~$19.1 billion, respectively.

Accounting for corporate costs as well as projected net debt yields a sum of the parts value of ~$20.7 billion or ~$149 per share (based on a diluted share count of ~139 million).

The Kraft Heinz Co. (KHC) “Pauses” its Previously Announced Separation in favor of $600 million in Turnaround Investments

On February 11, 2026, The Kraft Heinz Company (NASDAQ: KHC), a global packaged food company, “paused” its previously announced plans (in September 2025) to separate into two, independent, publicly traded companies, “Global Taste Elevation Co.” & “North American Grocery Co.”, via a tax-free spin-off transaction that was initially expected to be completed in 2H 2026. [Note: KHC, in its current iteration, was formed via the merger of Kraft & Heinz in 2015 and it announced a strategic review of its operations in May 2025.]  The company indicates that there is no set timeline to revisit the potential separation, in which management still sees the “industrial logic”, but management plans to re-evaluate its strategy once the company’s underlying businesses have regained “momentum”.  Toward that reinvigoration/turnaround endeavor, the company, under the new leadership of Steve Cahillane who assumed the chief executive (CEO) role on January 1, 2026 and who has indicated his first priority is driving a return to profitable growth, intends to invest ~$600 million in sales & marketing (S&M) and research & development (R&D) toward its efforts to drive a recovery/turnaround in its Taste Elevation business, which he discerns had been starved of investment over the last several years.

Recall, upon the transaction’s announcement (in September 2025) management’s initial rationale, which we anecdotally noted was at the time met with a degree of skepticism on the contemporaneous conference call with analysts/investors as it seemingly would unwind many of the purported synergies (most notably scale) underpinning the original combination (of Kraft & Heinz) back in 2015, the separation was aimed at reducing operational complexity within the company’s sprawling portfolio and improving management focus to the benefit of growth, margins and capital allocation. Subsequently, the transaction also seemingly garnered significant push back from investors, including Berkshire Hathaway, which filed (but is not obligated) to liquidate essentially all of its ~27.5% stake in January 2026.

For context, the previously announced split contemplated two independent concerns (whose names are, again, to be formerly determined): 1) Global Taste Elevation, which generated ~$15.4 billion of sales and ~$4.0 billion in adj. EBITDA in 2024 and will be primarily focused on so-called shelf-stable “sauces, spreads and seasonings” with well-known brands such as Heinz (e.g., ketchup & mustard), Philadelphia (i.e., cream cheese) and Kraft Mac & Cheese; and 2)  North American Grocery Co., which generated sales of ~$10.4 billion and adj. EBITDA of ~$2.3 billion in 2024, focuses on a portfolio of billion-dollar brands, including Oscar Mayer (i.e., packaged meats), Kraft Singles (i.e., cheese) and Lunchables (i.e., packaged meals). 

In terms of near-term guidance, the company has provided a consolidated 2026E outlook calling for a full-year organic net sales decline of 1.5%-3.5% with constant currency adj. operating income down 14%-18% (notably, this outlook includes the aforementioned investments, gross margin erosion of 25-75 basis points, marketing expense at ~5.5% of sales and inflation, including tariffs, of ~4%).  Adjusted EPS is projected to be $1.98-$2.10, assuming an effective tax rate of ~25.5%. Interest expense is expected to be ~$940 million with other expense/(income) of (~$200). Management’s free cash flow (FCF) conversion projection for 2026E is ~100%. 

In terms of valuation, Kraft Heinz (KHC) could be compared with, among others, The Campbell Soup Co. (NASDAQ: CPB), Conagra Brands (NYSE: CAG), General Mills (NYSE: GIS), Hormel Foods (NYSE: HRL), and The J.M. Smucker Co. (NYSE: SJM), which, on average trade at 10x 2026E/2027E EV/EBITDA (in a range of ~8.5x-11x).  Applying a slightly discounted blended multiple of ~9.0x (i.e., 9.5x & 8.5x based on margin disparities) to projected 2027E adj. EBITDA implies total segment value of ~$51.5 billion.  Accounting for projected net debt yields a total value of ~$33 billion or ~$28 per share (based on a diluted share count of ~1,185 million).

Post-Spin DD Reports 2025 Results Largely Ahead of Guidance and Introduces a 2026E Outlook Modestly Ahead of Consensus; Downgrade to NEUTRAL (from BUY) given the Relatively Limited Upside to our Revised ~$50 per share Fair Value Estimate (FVE) Following Solid Post-Spin Share Price Appreciation (effective as of today’s close)

This morning, before the market open, DuPont de Nemours, Inc. (NYSE: DD), which completed the tax-free spin-off of Qnity Electronics  (NYSE: Q) on November 3, 2025, reported full-year 2025 results demonstrating net sales growth of ~2% to $6.5 billion (compared with guidance of $6.84 billion), as ~9% growth at Healthcare & Water Technologies (H&WT) more than offset a ~3% decline at Diversified Industrials (DI), with operating EBITDA growth of ~6% to ~$1.628 billion (versus guidance of $1.6 billion) and adjusted EPS growth of ~16% to $1.68 (compared with guidance of $1.66). 

In terms of full year 2026E guidance, management’s initial outlook calls for organic net sales growth of ~3% to $7.075-$7.135 billion (compared with consensus of $7.07 billion), driven by mid-single digit organic growth at H&WT and low-single digit organic growth at DI, with adj. operating EBITDA of $1.725-$1.755 billion (compared with consensus of $7.07 billion), implying growth of ~6%-8%, and adj. EPS up ~11% to $2.25-$2.30 (versus consensus of $2.15 per share; see Exhibit 1 on page 2).  Free cash flow (FCF) conversion is expected to exceed 90% in 2026E.

For 1Q 2026 specifically, management projects organic net sales growth of ~2% (with a 2% FX tailwind) to $1.67 billion (in-line with consensus) with operating EBITDA up ~10% to ~$395 million and adj. EPS of ~$0.48 (both roughly in-line with consensus; see Exhibit 1).

Notably, during 4Q 2025 DD executed its previously announced $500 million accelerated share repurchase (ASR), as part of its overall $2 billion buyback authorization.  Looking into 2026, including the ~$1.1 billion of expected proceeds from the pending sale of Aramids (i.e., Kevlar & Nomex) to Arclin, which is expected to close by the end of the first quarter, the company intends to continue deploying capital in the “best interest” of shareholders, including dividends (e.g., payout target of 35%-45%), share repurchases (e.g., ~$1.5 billion remining authorization), M&A and internal investments (e.g., capex at ~3% of sales) while broadly maintaining a ~$1 billion cash balance and a leverage ratio of <2.0x. 

In terms of the medium-term financial outlook (i.e., 2025E-2028E; see Exhibit 2 on page 3), the company, on a consolidated basis, continues to project post-spin compound annual (CAGR) organic growth of 3%-4%, reflecting ~5% growth at Healthcare & Water along with ~2% growth at the Diversified Industrials segment, implying 2028E sales of ~$7.5-$7.75 billion, by our calculation, with 150-200 basis points of adj. operating EBITDA margin expansion, driven by leverage to sales growth (~110 bps), standard cost reductions (~40 bps) and productivity improvements in excess of inflation (~0-50 bps), implying adj. 2028E EBITDA of ~$1.9 billion.  Adj. EPS is expected to improve at a compound annual rate of ~8%-10%, not including incremental capital allocation activities, over the next three years, implying 2028E EPS, again, by our calculation, of ~$2.50-$2.65 (as well as that every ~1% growth in sales seemingly yields nearly 2% of EPS growth).  Anecdotally, with respect to cadence, management expects top-line growth, ex-acquisitions, to be relatively linear and that margin improvement, if anything, is likely more heavily weighted to the first two years of its forecast. 

Our fair value estimate (FVE) for post-spin DuPont (NYSE: DD) is modestly revised upward to $50 per share (previously $48 per share) based on a ~13.0x blended multiple on 2026E EBITDA while accounting for corporate costs and projected net debt (see Exhibit 3 on page 4).

That said, with DD shares up ~43% since the completion of its separation of Q in early-November 2025 (outperforming the S&P 500 and Russell 2000 indexes by ~41% and 34%, respectively) and trading roughly in-line with our revised $50 per share FVE we temper our rating/recommendation to NEUTRAL (from BUY), effective as of today’s close.

Please see The Spin-Off Report dated October 8, 2025 and Updates from 10/16/2025, 11/3/2025 and 11/6/2025 for more information.

BDX Completes the Spin-Off of B&D Spin-Off and RMT Merger with WAT; Maintain NEUTRAL Ratings on both Post-Spin Entities

Distribution: On January 9, 2026, Becton, Dickinson & Co. (NYSE: BDX), a global medical technology company, completed the spin-off of its Biosciences & Diagnostics business and its concurrent combination with Waters Corp. (NYSE: WAT) in a tax-free Reverse Morris Trust (RMT) transaction.  Consistent with initial projections, BDX shareholders, at closing, own 39.2% of the combined company (i.e., New Waters), on a fully diluted basis, with existing WAT holders owning the remaining 60.8%. (Per management, the diluted share count for post-spin WAT is 98.4 million, at closing.) Post-spin, BDX will receive a $4 billion distribution from New Waters, of which it expects to deploy $2 billion toward buybacks via an accelerated share repurchase (ASR) program with the remainder being applied to debt reduction.

Regular-way Trading & Indexation: Shares of BDX (as well as post-spin WAT) commence so-called “regular way” trading this morning. On the indexation front, both pre-spin BDX and WAT were members of the S&P 500 and are expected to remain so moving forward post-spin.  [Note: the lead up to the transaction did not include a formal “when-issued” trading period but shares did begin trading “due bills” on February 5^th.]

Initial Guidance: In conjunction with 1Q F2026 and full-year 2025 results both New BDX and New Waters provided some initial full-year (and next quarter guidance).  For New BDX, management projects “low single-digit” top-line growth in F2026, including a ~120 basis point tailwind from currency, and an adjusted operating margin of ~25%, which is expected to yield adj. EPS of $12.35-$12.65, implying ~5%-7% year over year growth (see Exhibit 1).  The company’s guidance, which contemplates the receipt of a $4 billion cash distribution from New Waters, is predicated on, among other things, net interest (& other) expense of ($600)-($620) million, an adj. effective tax rate of ~16%-17% and a weighted average share count of ~282 million (assuming the execution of its $2 billion ASR).  At closing, the company’s leverage ratio is ~2.9x (although management’s target remains ~2.5x).  For 2Q F2026 specifically, New BDX forecasts top-line growth of ~2% and adj. diluted EPS of $2.72-$2.82. 

At New Waters, management projects organic growth of 5.5%-7.0% in 2026E (see Exhibit 2), including the ~$3.0 billion contribution from BDX’s Biosciences & Diagnostics business as well as the realization of $50 million in sales synergies, to $6.405-$6.455 billion with an adj. operating margin of ~28% and adjusted EPS of $14.30-$14.50 (based on net interest & other expense of ~$180 million, a 16.6% effective tax rate and a diluted share count, at closing of, 98.4 million).  For additional context, recall that pre-spin WAT’s management articulated a broad framework for its medium-term (i.e., 5-years) post-spin financial profile that projects compound annual top-line growth in the “mid-to-high single digits” and 500 basis points of operating margin expansion, including $345 million of synergies (e.g., $200 million from cost takeouts & $145 million from sales synergies) as well as ~30-40 bps of natural annual margin uplift, to ~32%, implying 2030E sales and adj. EBITDA of $9.0 billion and $3.3 billion, respectively (see Exhibit 3).

Pre- & Post-spin Recommendations: Following our initial pre-spin NEUTRAL recommendation, shares of consolidated/pre-spin BDX appreciated ~3.2% (outperforming the S&P 500 and Russell 2000 by ~3.3% and ~1.0%, respectively).  Post-spin, as mentioned earlier, there is no obvious indexation angle as both entities are members of the S&P 500 index (where they are expected to remain). [Note: at BDX the top 4 shareholders, Vanguard, Blackrock, T. Rowe, and State St. collectively own ~89.2 million shares or ~34.75% of the shares while at WAT Vanguard, Blackrock and State St. own ~15.5 million shares or ~26% of the outstanding shares]. Nevertheless, it seems reasonable to suggest that new Waters could see some initial shareholder-related rotation from former BDX holders (who own ~39.2% of the outstanding post-spin shares).  As well, for post-spin BDX, whose stock we perceive to be reactive to small differentials in organic growth we suspect that the current pocket of below-trend growth due to pronounced weakness in several small (i.e., 10% of sales) areas (e.g., China & vaccines) of the business, may present a variable for nearer-term volatility (although we think any prolonged weakness in shares will likely be met with more aggressive share repurchase activity and potentially present attractive potential upside as the cleaner mid-single digit growth profile re-emerges in F2027-F2028).  All told, we continue to think new investors are still afforded the luxury of awaiting more compelling buying opportunities in both New BDX and New Waters, post-spin. To that end, we will, as always, monitor shares of both post-spin companies for potentially attractive entry/trading points for investors.

Also, please see The Spin-Off Report dated January 30, 2026, for more information.

MOD to Combine its Performance Technologies (PT) Business with Gentherm (THRM) in a Tax-Free Reverse Morris Trust (RMT) targeted for completion in 4Q 2026

Modine Manufacturing Company (NYSE: MOD), a global thermal management equipment company with exposure to both the building & vehicle sectors, has entered into an agreement with Gentherm (NASDAQ: THRM) to spin-off its Performance Technologies (PT) business and concurrently combine it with THRM in a tax-free Reverse Morris Trust (RMT) transaction that is targeted for completion in 4Q 2026, subject to THRM shareholder approval, and other customary tax, financing & regulatory approvals. The deal is valued at ~$1.0 billion or ~6.8x adj. EBITDA of ~$147 million, on a post-synergy basis.  MOD is expected to receive a $210 million cash distribution at closing (albeit subject to adjustment) along with 21 million shares (roughly 40%) of the combined company implying an equity value of ~$790 million. 

For context, this transaction offers THRM (a sub-$1 billion market capitalization concern) with significantly improved scale and expected combined company sales of $2.6 billion (focused on the commercial, heavy-duty & light vehicle end-markets as well as power generation and medical sectors) along with a synergy-adjusted EBITDA margin of ~13% (with a path to the “mid-teens”) and a net leverage ratio contemplated at ~1.0x while for Modine, in addition to the cash infusion that is expected to drive standalone leverage below 1.0x, the divestiture positions the standalone business as a pure-play climate control focused on data centers (~45%) and HVAC technologies (~55%) generating ~$1.6 billion in sales (with the expectation of achieving ~$2 billion in F2026 with 50%-70% growth in data centers during each of the next two years) and an adjusted EBITDA margin approaching ~20% or roughly $307 million on an annualized basis. 

Currently, MOD operates two segments: 1) Climate Solutions (55% of consolidated sales in March-ending F2024 and 68.5% of EBITDA), which primarily serves the data center and HVAC&R sectors; and 2) Performance Technologies (40% of sales of 31.5% of EBITDA in March-ending F2024), which provides air- & liquid-cooled applications and solutions to, among others, original equipment manufacturers (OEMs) in the auto, construction, agricultural and industrial sectors  In terms of full-year F2026 guidance, management projects net sales growth of 20%-25% and adjusted EBITDA of $455-$475 million, implying 16%-21% growth (compared with its initial guidance of top-line growth of 2%-10% and adj. EBITDA of $420-$450 million). 

In terms of valuation, MOD’s, PT business could be compared with a range of auto-suppliers, including Adient (NYSE: ADNT), Allison Transmission (NYSE: ALSN), American Axle (NYSE: AXL), Aptiv (NYSE: APTV), BorgWarner (NYSE: BWA), Commercial Vehicle Group (NASDAQ: CVGI), Cooper-Standard (NYSE: CPS), Dana (NYSE: DAN), Lear Corp. (NYSE: LEA), Magna (NYSE: MGA), Stoneridge (NYSE: SRI), and Visteon (NYSE: VC), which trade, on average, at ~6.0x 2207E EV/EBITDA (in a range of ~4.0x-7.5x), while the Climate Controls business could be compared with AAON Inc. (NASDAQ: AAON), A.O. Smith Corp. (NYSE: AOS), Carrier Corp. (NYSE: CARR), Emerson Electric (NYSE: EMR), ITT Inc. (NYSE: ITT), Lennox International (NYSE: LII) and Schneider Electric (FR FP), which trade, on average, at 15.5x (in a range of 12.5x-18.0x)

Applying a blended multiple of ~15x to 2027E estimated EBITDA and accounting for projected net debt yields a preliminary sum-of-the-parts valuation of ~$11.6 billion or ~$221.50 per share (based on a diluted share count of ~52.5 million).

BILL posts a solid 2Q F2026 beat and raises full-year financial guidance (again) as management downplays potential impact from “AI disruption” given its differentiation; share repurchases modestly ramp while BILL maintains a net cash balance of ~$4.25 per share; fair value estimate is $60 per share

Yesterday, after the market close, BILL reported 2Q F2026 results, which reflected top-line growth of ~14% to $414.7 million (compared with consensus of $400.7 million and guidance of $394.5-$404.5 million) with core revenue  (i.e. subscription & transaction fee) growing ~17% to $375.1 million, reflecting a 20% advance in transaction fees (compared with guidance of $359-$369 million; see Exhibit 1).  Adjusted operating income increased ~18% to $74 million (versus guidance of $62.5-$67.5 million while adjusted EPS rose more than 14% to $0.64 (compared with consensus of $0.56 and guidance of $0.54-$0.57).

The company generated ~$91.1 million of free cash flow (FCF) in 2Q F2026 (compared with $71.6 million in the prior year period) and repurchased 2.5 million shares for ~$133 million (or ~$53 per share), ending the quarter with a net cash balance of ~$408 million (or ~$4.25 per share).  In the first six months of F2026, BILL has already exhausted ~$215 million of its $300 million buyback authorization, which management has anecdotally indicated it intended to exhaust during the fiscal year (portending a upsized program may be in the offing)

In terms of guidance, the company increased its full-year June-ending F2026 outlook (for the second time this year), which calls for total sales of $1.631-$1.651 billion, up 12%-13% year over year (and up from its initial guide of 9%-11%) and core revenue of $1.4895-$1.5095 billion, implying year-over-year growth of 15%-16% (compared with its original guidance of 12%-15%).  Float revenue (or the interest earned on customer funds held) is expected to be ~$141.5 million (up from the previous commentary of ~$134 million). Adjusted EBIT is expected to be $274-$286.5 million (compared with its initial and previous outlooks of $240-$270 million & $256.5-$276.5 million, respectively) while full-year adj. EPS is now projected to be $2.33-$2.41 (compared with current consensus of $2.23 and management’s initial & previous guides of $2.00-$2.20 and $2.11-$2.25, respectively; see Exhibit 1).

For 3Q F2026, BILL introduced quarterly guidance calling for total sales growth of 11%-14% to $397.5-$407.5 million (compared with consensus of $396.9 million) with core revenue growth is projected to advance 14%-17% to $364.5-$374.5 million.  Adjusted operating income is expected to be $62.5-$67.5 million with adj. EPS of $0.53-$0.57 (compared with consensus of $0.52; see Exhibit 1).

All told, our base case fair value estimate (FVE) for BILL Holdings (BILL) is $60 per share, reflecting a blended multiple of ~3.5x on F2027E gross profit, including stock-based compensation, as well as projected net cash (see Exhibit 2).

Downgrade SOLS to NEUTRAL (from BUY) with Shares Trading Roughly In-Line with our FVE of $65 per share

For context, Solstice Advanced Materials Inc. (NASDAQ: SOLS) completed its tax-free separation from Honeywell International Inc. (NYSE: HON) on October 29, 2025; following our initial NEUTRAL recommendation shares declined ~13.5% (underperforming the S&P and Russell by 9.65% and 7.75%, respectively), amid both technical index-related & natural shareholder rotation factors, prompting our upgrade to BUY on 11/19/2025 (see Update), since which time SOLS shares have sharply rebounded ~53% (outperforming the S&P and Russell by ~49% and 41%%, respectively).

In our view, besides being oversold in the low-$40’s amid the lack of an initial shareholder constituency within the larger parent (i.e., a greater Aerospace & Automation focus) the stock has re-rated away from a valuation that was more aligned with lower-margin/commoditized & highly levered peers, such as Chemours (NYSE: CC), toward higher-valued peers, such as Entegris (NASDAQ: ETNG) and Element Solutions (NYSE: ESI).  Additionally, we perceive that shares have also benefited, as of late, from investor enthusiasm regarding the company’s defense (i.e., Spectra) and nuclear capabilities (i.e., SOLS is the sole domestic provider of uranium hexafluoride conversion services), which add additional levers to the company’s core refrigerant-centric growth/margin theme (i.e., data centers) and were, in our view, seemingly overlooked by existing/potential shareholders preceding SOLS’s debut.

That said, with shares currently trading in-line with our $65 fair value estimate (FVE) we think it reasonable/prudent to temper our previous bullish stance and lower our investment recommendation to NEUTRAL (from BUY).

In terms of guidance, recall management re-iterated its initial 2025E guidance on its most recent earnings conference call (see Exhibit 1), and its “Medium-Term” targets continue to call for low-to-mid single digit top-line growth, a mid-single digit adjusted EBITDA CAGR, and a free cash flow conversion ratio of greater than 70% (see Exhibit 2).  Capital expenditures are projected to be in the mid-single digits (down from ~10% in 2025E), as a percentage of sales, and the net leverage target is ~1.5x (roughly in line with current levels).

The company intends to report 4Q 2025 and full-year results before the market open of February 11, 2026 and hold a conference call to discuss the results that morning at 8:30 a.m. (ET).

In terms of valuation, our fair value estimate of $65 per share, reflects a blended multiple of ~12x on 2026E EV/EBITDA as well as projected net debt of ~$1.7 billion and a diluted share count of ~160 million (see Exhibit 3 and Exhibit 4 on pages 2 and 3).

Please see the Spin-Off Report dated October 14, 2025, and the Updates from 10/16/2025, 10/30/2025 and 11/19/2026 as well as the Reference section on pages 4-8, for more information.

IP to Split Into Two Geographically Focused Concerns within 12-15 Months; Tax Status is Uncertain

On January 29, 2026, International Paper Company (NYSE: IP), a global pulp, paper & packaging products provider, announced its intention to separate its North American (NA) and Europe, the Middle East & Africa (EMEA) businesses into two independent, publicly traded companies.  ReminCo will be comprised of both the legacy IP & DS Smith assets in North America while SpinCo, which will be led by Tim Nicholls (currently the EVP and President of DS Smith), will also include the EMEA-focused assets of both legacy IP as well as DS Smith.  The transaction, which is expected to be completed over the next 12-15 months (i.e., 1H 2027) is planned to be structured as a “spin-off”; that said, IP indicates that it intends to retain a “meaningful” (but as yet undetermined) stake in the company, which leaves the ultimate tax status dependent on the deal’s final terms (i.e., IP needs to spin-off at least 80.1% of SpinCo to qualify as “tax-free” under the U.S. federal income tax code).  [Note: IP completed the tax-free spin-off, while retaining a 19.9% stake, of its global printing paper business, Sylvamo Corporation (NYSE: SLVM), in October 2021.]  In terms of balance sheet commentary, management indicates the expectation that both standalone entities will maintain investment grade credit ratings (although, we note, that the ultimate individual dividend policies are still being evaluated).

The spin-off announcement, which management anecdotally indicated likely came as a “surprise” to many investors, comes in the context of the late-2024 implementation of its internal “80/20” strategic approach, which focused on reducing costs, optimizing allocating capital and increasing mill/supply reliability, as well as the ~$9.9 billion all-stock combination with DS Smith (formerly SMDS LN) in January 2025, which bulked up IP’s European presence as well as added a complementary box network in North America.  In terms of rationale for the spin, beyond the standard motivations, such as increased management focus, more targeted capital allocation and more tailored investment vehicles the main driver, at least in our anecdotal understanding, is primarily the unique operating/competitive landscapes in the U.S. and EMEA, which have relatively similar total addressable markets (i.e., $50B North America/$40B EMEA), but divergent long-term growth outlooks (i.e., 1%-1.5% NA/1.5%-2.0% EMEA), supply concentration (i.e., 80% NA/~50% EMEA), and competitive dynamics (i.e., NA is more integrated nationally with a more centralized customer base while EMEA is more localized by region).  All told, management indicates that the two businesses have de minimis operating “overlap” and require more bespoke go-to market strategies. 

The North American Packaging Solutions business (i.e., PS NA or RemainCo), is indicated to have generated~$15.175 billion of sales in 2025, up ~6% year over year, with adjusted EBITDA, ex-corporate costs, of ~$2.3 billion, up ~37% compared with 2024 (on ~400 bps of margin expansion to 15.7%), across a network of ~220 facilities in the U.S & Mexico, while the EMEA Packaging Solutions segment (i.e., PS EMEA or SpinCo) posted ~$8.45 billion of sales with adjusted EBITDA of $784 million (on a margin of 9.3%).  In terms of guidance, for full-year 2026E IP expects consolidated sales of $24.1-$24.9 billion with adjusted EBITDA of $3.5-$3.7 billion and free cash flow (FCF) of ~$300-$500 million. (Anecdotally, the company’s 2026E FCF guide compares with its annual dividend payout of ~$1 billion; that said, management is committed to maintaining its current dividend policy in 2026.)  By segment, PS NA is projected to post 2026E sales of $14.6-$15.0 billion with adj. EBITDA of $2.5-$2.6 billion while PS EMEA is forecasted to generate $9.5-$9.9 billion of sales with adj. EBITDA of $1.0-$1.1 billion in 2026E.  Longer-term, management has indicated that it “remains on track” to achieve its previously articulated 2027E adj. EBITDA target of ~$5 billion (on sales of ~$25.5 billion).

In terms of valuation, competitors to IP’s North American and EMEA businesses could include a wide range of players, such as Smurfit Westrock (NYSE: SW), which is the product of the July 2024 all-stock merger of Westrock & Smurfit, and Packaging Corp. of America (NYSE: PKG) as well as Amcor plc (NYSE: AMCR), which acquired Berry Global in April 2025, Clearwater Paper Corp. (NYSE: CLW), Greif, Inc. (NYSE: GEF), Graphic Packaging (NYSE” GPK), Mondi plc (MNDI LN), Sonoco Products Co. (NYSE: SON), Stora Enso Oyi (STERV FH), Suzano (SUZBC BZ), which unsuccessfully attempted to purchase IP for ~$15 billion in 2024, and UPM-Kymmene Oyj (UPM FH), which trade, on average, at ~7.0x 2027E EV/EBITDA (in a range of ~6.0x-10x).  On the M&A front, transactions in the packaging & container sector have, per Chain Bridge Research, averaged ~8.5x forward EV/EBITDA (in a range of ~7.5x-11x). 

Applying a blended multiple of ~7.5x to 2027E estimated EBITDA and accounting for projected net debt yields a preliminary sum-of-the-parts valuation of ~$23 billion or ~$43 per share (based on a diluted share count of ~530 million).