Masco Corporation (MAS)

Total return at 5 years: 3.6%/year = 1.8% appreciation + 1.9% dividend. The target price ($79) is ex-dividend; the $7 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($73) and the other below.

Today — expensive, no margin of safety: at $73 trades ~4.1% above its value discounted to today (~$70); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($79) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$44.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($73) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-3.2%/year) than we project (3.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.8 bn of owner earnings in year 5 (vs ~$1.1 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/NOPAT — resultado operativo después de impuestos. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the trailing twelve-month window closed June 30, 2026, built by levels from the July 29, 2026 release because the commission's data interface had not yet ingested that quarter: fiscal 2025 plus first-half 2026 minus first-half 2025. Net sales 7,562 + 3,910 − 3,852 = $7,620 million; operating income 1,248 + 787 − 698 = $1,337 million; earnings attributable to Masco 810 + 531 − 456 = $885 million. Year-0 operating income is normalized at $1,242 million (16.3% margin) and not the reported $1,337 million. The cause of the jump is disclosed by the company itself in the release: a net benefit of approximately $95 million from tariff refunds under the International Emergency Economic Powers Act, which management quantifies at approximately $85 million for the full year and which explains the increase in adjusted earnings-per-share guidance from $4.10-4.30 to $4.40-4.60. It is money that does not recur: it is not a restructuring charge — the quarter's rationalization charges are $5 and $7 million — but a one-time refund. Net of that refund, the window's operating margin stands at 16.3%, against 16.5% in fiscal 2025 and a historical range of 14.9% to 17.4% over the last four fiscal years (2022 to 2025): that is, the underlying business is stable. The refund explains roughly 480 of the 600 basis points of the quarter's gross margin jump — and more than the entire operating margin jump, which ex-refund would have fallen from $412 to $375 million — leaving about 120 basis points of underlying improvement that is also not projected forward in the base case. Year 1 anchors to the ex-refund guidance: the prior adjusted earnings-per-share guidance of $4.10 to $4.30 is the company itself saying what it expects for the year without the refunded tariff, and the midpoint equates to about $835 million of attributable earnings. The revenue path starts at 0.5% and reaches 3.7% by year 5: first-half 2026 grew 1.5% and the second quarter fell 3% against a demanding comparison, with consolidated volume negative (−4% in 2025) offset by positive price (+2%), and the recovery depends on the residential repair-and-remodel cycle, which is rate-sensitive. The adverse scenario stresses year 1 with a 3% decline; the favorable scenario starts at 3% with the cycle recovering. The valuation is at the enterprise level — after-tax operating income times exit multiple — and not on earnings per share, because the company has $3,247 million of gross debt against $548 million of cash at June 30, 2026: $2,699 million of net debt on a market value of about $14,500 million, or 19%, which a multiple on earnings would bury inside the multiple. Actual cash and debt go into the model's common block. The noncontrolling interest is the Hansgrohe minority and is material: $53 million in the trailing twelve-month window on consolidated earnings of $937 million, or 5.7% of the consolidated figure. Since the multiple is applied to consolidated operating income, the value of that interest is deducted in the bridge alongside debt: $742 million, which is its window earnings capitalized at the same base-case multiple. Without that deduction, per-share value would be overstated by about $4.50. The window's capital investment is $165 million against $151 million of depreciation, with sales essentially flat: under Greenwald's criterion, with revenue change close to zero, growth capex is negligible and practically all of the investment is maintenance, hence the split runs at 95%. The buyback is strong and is modeled with an explicit share path: the average diluted count fell from 211 to 199 million between the two second quarters and from 212 to 201 between the two halves, on the order of 5.5% annually revealed. The modeled path trims this to 4.5% because part of the buyback was funded with the $300 million term loan taken out in the half, and not with generated cash flow: capacity is not the constraint, since the window's free cash flow less the dividend covers 6.0% of market value, above the modeled rate. The path is a single one across the three scenarios: it comes from a single revealed history, and the scenarios vary the speed of the business, not the capital-return policy.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $79 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $73, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $79 in 5 years plus $7 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $70. Against the current market price ($73), the margin of safety is -4.1% (trades above the maximum → a premium is paid) and the total return at that price would be 3.6% annually.

• Entry multiple. At $73 one pays 18× for normalized after-tax operating income.
• Exit multiple. 14 times, the center of the industrial archetype's 12-to-18 band: the case does not depend on multiple expansion.
• Estimated return. +4% annualized over five years, of which +2% comes from price and +2% from the dividend.
• Margin of safety. No margin of safety: at this price capital is preserved, but it is not bought below its value. The range between +4% and +4% depends on the housing cycle, not on the quality of the business.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (99%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on invested capital. 36.4%, well above the 10% bar, with a capital-light structure and small goodwill.
• Predictable cash generation. Free cash flow between US$866 million and US$1,170 million over the last four fiscal years, with irregular working-capital swings.
• Reinvestment runway. Capital expenditure is almost entirely maintenance with flat sales: there is no room to reinvest at these returns.
• Earnings quality. The second-quarter margin jump comes from a one-time tariff refund, disclosed by the company and normalized out of year 0.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The revenue engine is units sold times brand price through the retail and wholesale channel. The company explicitly breaks down that product in its analysis: in 2025 consolidated volume subtracted four points of growth and net price added two, with Plumbing raising price three points. The other two drivers describe capital allocation, which is where much of the per-share return is generated: the share count falls steadily and the dividend grows at a low single digit.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Historical growth. Sales −8.2%, −1.7% and −3.4% over the last three fiscal years.
• Volume versus price. In 2025 volume subtracted four points and price added two: nominal growth rests on price, not on units.
• International growth. International sales grew 4% in local currency in the second quarter against −5% in North America.
• Growth per share. The diluted share count is falling on the order of 5% annualized, turning a flat result into per-share value growth.

• Product relevant in ten years. Bathroom faucets, paint and hardware are stable categories: demand tracks the housing stock, not a technology.
• Pricing power. In 2025 it raised net prices two points consolidated and three in Plumbing while volume fell four: the brand holds price.
• Customer concentration. The Home Depot is 38% of sales and holds Behr exclusivity. The company states losing a substantial portion would be a material adverse impact.
• Recession behavior. Repair-and-remodel demand is sensitive to rates and consumer confidence; the current cycle has run three fiscal years of contraction.
• Operating leverage. Operating margin moved between 14.9% and 17.4% over four fiscal years with sales down 13%: the structure absorbs the volume decline reasonably well.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 2.5x
• ✓Interest coverage (EBIT / interest)12.1x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 99% of ROIC
• ✓Value creation (ROIC − 10% bar)+26pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.1x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.4% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net debt of US$2,699 million, approximately 2.2 times normalized operating income.
• Liquidity. US$1,548 million at the close of the second quarter, including US$1,000 million of revolver availability.
• Book equity. Negative US$118 million at June 30, 2026, from decades of accumulated buybacks.
• Working capital. 19.8% of sales against 20.1% a year earlier, with receivable, inventory and payable days stable.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Trailing twelve-month window through June 30, 2026: $165 million of capital investment, $258 million of dividends, and $932 million of buybacks. It is an allocation directed almost entirely at capital return, consistent with a business without a reinvestment runway at its own returns, but one that in this window exceeded the free cash flow generated.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Returns nearly all cash flow: US$932 million of buybacks and US$260 million of dividends in the window.
• Return discipline. The return exceeded free cash flow and relied on a US$300 million term loan taken in the half.
• Management ownership. Directors and executives as a group hold 1,121,375 shares, less than 1%: no meaningful ownership commitment.
• Candor in communication. The earnings release explicitly quantifies the tariff refund and explains it as the cause of the guidance increase, rather than presenting it as operating improvement.

• Motivated seller from deceleration: three fiscal years of declining sales and a second quarter with sales −3% keep the business off the radar of growth investors, even though return on capital has not deteriorated.
• Missing buyers because of the cycle: exposure to residential repair and remodel means the price tracks mortgage rates more than business fundamentals.
• Concentration in The Home Depot is a real risk, verifiable in the company's own annual report, and the market applies a channel-governance discount that does not depend on quarterly results.

The discount exists but is not large: at $73 one pays 18× for a business with negative volume, so perception and reality are not that far apart. Incorporating the Jul 29, 2026 earnings release did not change the case: guidance rose because of a one-time tariff refund that is normalized out of year 0.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -6%/year (-27% total): the margin of safety protects the downside. The bull (+12%/year, +76% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Channel dependency. 38% of sales runs through The Home Depot, which also holds exclusive distribution of Behr in the North American retail channel.
• Tariffs and input costs. The company states significantly higher costs from tariffs, mainly tied to China, that are difficult to pass through.
• Housing cycle. Residential repair and remodel is sensitive to mortgage rates, employment and consumer confidence.
• Private label and online channel. The risk factors state that private label and online price transparency have already impacted margins.
• Currency exposure. 21% of sales are generated outside North America, mainly in Europe.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 36% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 4% at a multiple/growth of 5.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 7% (EBIT/EV) + ROIC 36% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -3% vs our 4%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -8%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, switching costs, cost advantage → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -3%, within what we project (4%) — the story squares with the numbers.