Trimble Inc. (TRMB)

The methods disagree: one places the value today above the price ($59) and the other below.

Today — expensive, no margin of safety: at $59 trades ~16.9% above its value discounted to today (~$51); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($63) 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 ~$32.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($59) 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 (2.1%/year) than we project (8.7%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.7 bn of owner earnings in year 5 (vs ~$0.9 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 NOPAT (suma de las partes por segmento). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the TTM ended 3-Jul-2026 (rolling grid, revenue US$3.783bn, EBIT US$642.7M — a 17.0% margin, a figure already clean because the T&L goodwill impairment of US$562M in Q2'26 fell outside reported operating income, as follows from the fact that TTM pre-tax income (−US$3.8M) is consistent with EBIT − interest − the impairment, not with EBIT alone). Year 1 is anchored to the guidance in the release of 12-Aug-2026 (8-K, Item 2.02): revenue of US$3,900-3,950M (midpoint US$3,925M, +3.8% over the TTM) — the only anchor available from the release, because the guided non-GAAP earnings per share (US$3.60-3.70) excludes stock-based compensation and is not compatible with the method's directive to always expense it in the metric (§3, the TSLA case: SBC 20.1% of free cash flow though only 4.1% of revenue). Year-1 growth (+3.8%) comes in below the most recent quarterly pace (Q2'26 revenue +11% year over year) because the annual guidance incorporates tougher comparisons in the second half; from year 2 the path converges toward the organic growth of annualized recurring revenue (organic ARR +14% year over year in Q2'26, with the software/services/recurring mix rising from 76% to 79% of revenue), accelerating smoothly from +5.0% to +6.5% by year 5 — a declared reacceleration, not a forced start, because reported revenue still lags ARR while the business mix finishes rotating toward subscription. The operating margin (EBIT) expands from 17.0% to 21.5% as the software mix gains weight and the amortization of intangibles from old acquisitions (a large part of the US$202M of TTM depreciation and amortization) is diluted against larger revenue — real capex is barely 0.7% of revenue (US$26M TTM), so almost all depreciation does not represent a need for physical reinvestment (maintPct=1: all capex is maintenance, on the same logic as a railroad or a low-capex company — Greenwald). The operating cash margin (ocfMargin) is net of stock-based compensation (the method's directive): the TTM's gross 21.1% less the 4.1% of revenue of SBC gives 17.0% net, the basis of owner earnings. The company combines three segments of different natures under one roof — AECO (design and construction software, capital-light, segment margin ~34%), Field Systems (GNSS positioning and machine guidance hardware combined with subscriptions, segment margin ~31%) and Transportation & Logistics (transportation management software, segment margin ~22%, and the one that took the US$562M goodwill impairment in Q2'26 on the sustained fall in market multiples for software in that category) — so it is modeled as a sum of the parts: each segment contributes a fraction of terminal net operating profit (derived from each segment's revenue share and margin in the fiscal year ended January 2026, the latest breakdown reported) with its own exit multiple. Buybacks are material (approximately 3.8% a year of market capitalization, US$515M over the last twelve months) and are modeled with an explicit share path; the retained remainder (approximately a third of real free cash flow) is redeployed — not accumulated as cash — because the company has a history of allocating it to debt reduction and bolt-on acquisitions rather than leaving it idle on the balance sheet.

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 $63 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $59, 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 $63 in 5 years and a required return of 4.5% annually, the maximum to pay today is $51. Against the current market price ($59), the margin of safety is -16.9% (trades above the maximum → a premium is paid) and the total return at that price would be 1.3% annually.

• Multiple vs quality. Sum of the parts at 28× NOPAT, with segment-differentiated multiples — recognizing the uneven quality between AECO/Field Systems and T&L.
• Reverse DCF. The inverse approach shows what growth today's price discounts against the projected base case.
• Margin of safety. Base return +1% over five years; No margin of safety: at this price capital is preserved, but it is not bought below its value.

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

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (103%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Margin and mix. TTM operating margin 17.0% with software mix rising to 79% of revenue; segment margin above 30% in AECO and Field Systems.
• Cash quality. Reported operating cash flow is inflated by the add-back of stock-based compensation (20.1% of free cash flow); the valuation metric expenses it.
• Invested capital. Real capex is only 0.7% of revenue; reported depreciation is mostly amortization of intangibles from past acquisitions, not necessary physical reinvestment.

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

Annualized recurring revenue (ARR) is the key leading indicator of Trimble's subscription business: it grows 14% organically, well above consolidated reported revenue, because the mix is still rotating from product/hardware to subscription (79% of revenue in 2025, versus 76% in 2024). Each segment's engine differs: AECO and T&L monetize through software subscription, Field Systems combines hardware sales with positioning subscriptions (CenterPoint RTX).

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 (3-jul-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).

• Real, not nominal. Reported revenue recovered after two years of decline (Mobility sale, difficult comparisons); organic annualized recurring revenue grows 14%.
• Growth engine. The mix rotation toward subscription, not hardware volume expansion.
• Deceleration and cycle. Current-year guidance (+3.8%) sits below the recent quarterly pace (Q2'26 +11%), reflecting tougher comparisons in the second half.

• Relevant in 10 years (recurrence). Construction, geolocation and transportation will keep needing these tools; the rotation toward subscription (79% of revenue) improves recurrence versus a pure hardware-sale model.
• Pricing power. Organic annualized recurring revenue (14%) far exceeds reported revenue, evidence that the installed base accepts the migration to subscription, but there is no clear evidence of pure pricing power on hardware.
• Moat and its direction. Partial moat, uneven across segments: solid in AECO and Field Systems (patents, joint ventures), weaker in T&L (recent goodwill impairment).
• Capital cycle. The disruption from generative artificial intelligence lowers barriers to entry for competing software development across the industry — the capital-cycle risk is real and already visible in T&L's multiple.

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 1.5x
• ✓Interest coverage (EBIT / interest)8.6x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 103% of ROIC
• ✕Value creation (ROIC − 10% bar)-2pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.1x — no over-investment
• !Float / working capitalConsumes cash $0.2 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 4.1% 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. Debt of US$1,459M against cash of US$214M; manageable given TTM EBIT, but covenants require timely filings.
• Coverage and cash. Reasonable interest coverage; low real capex (0.7% of revenue) leaves room for buybacks and debt reduction at the same time.
• Governance. Material weaknesses in internal control unremediated since 2023; block Form S-3 until April 2026.

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

• Skin in the game. Insiders own only 0.6%; no controlling shareholder. The largest holder is Vanguard (13.2%), passive.
• Capital allocation. Disciplined divestment of businesses that no longer fit (Mobility, agriculture) and material buybacks with no dividend; the remainder is redeployed into debt and bolt-on acquisitions.
• Integrity / normalization. Material weaknesses in internal control unremediated since 2023, with delayed filings and a Nasdaq listing rule violation — a process signal weighing against.

• A US$562M goodwill impairment recognized in Q2'26 (Transportation & Logistics) drove the GAAP result to a net loss, a non-cash charge that does not reduce owner earnings but weighs on the headline.
• Material weaknesses in internal control, unremediated since 2023, generate a real governance discount: they block use of Form S-3 and create uncertainty about the reliability of future reports.
• The market discounts the disruption from generative artificial intelligence on design and construction management software across the industry, a sector-wide risk that weighs on Trimble beyond its own execution.

There is an identifiable motivated-sellers source: a non-cash accounting charge (the goodwill impairment) and a concrete, named governance problem (internal control) explain much of the stock's decline, beyond what the deterioration in the underlying business justifies.

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 -13%/year (-50% total): the margin of safety protects the downside. The bull (+10%/year, +58% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Internal control. The governance disconfirming factor: material weaknesses unremediated, with risk of an undetected material error.
• Artificial intelligence disruption. A threat across all three segments, already partly materialized in T&L's goodwill impairment.
• Debt refinancing. US$1,459M in senior notes, with covenants tied to the timeliness of SEC filings.
• Subscription renewal. Customers have no obligation to renew; ARR growth depends on maintaining high renewal rates.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 8% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 9% at a multiple/growth of 3.2 → expensive for its growth.

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

  Earnings yield 4% (EBIT/EV) + ROIC 8% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 2% vs our 9%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -13%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

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

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 2%, within what we project (9%) — the story squares with the numbers.