Tenaris S.A. (TS)

Total return at 5 years: 4.6%/year = 2.5% appreciation + 2.2% dividend. The target price ($66) is ex-dividend; the $7 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $93 · Multiples $58) exceeds the market price ($58).

Today — fairly valued: at $58 trades close to its value discounted to today (~$58); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($66) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$37.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($58) 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 (-6.9%/year) than we project (3.2%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.3 bn of owner earnings in year 5 (vs ~$2.2 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 Utilidad atribuible (P/E de mitad de ciclo). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Annual reporter: Tenaris files a 20-F and publishes its quarters on 6-K with no tagged data, so year 0 is the fiscal year ended 31-Dec-2025 and not a rolling twelve-month period (the annual reporter convention). Year-0 earnings are normalized by subtracting the US$34 million benefit from the return of antidumping deposits (US$27 million after tax), which leaves a net margin of 15.9% against the 16.1% reported. The normalization to mid-cycle rests on the full cycle and not on the last year: between 2020 and 2025 the company accumulated US$62,805 million of revenue and US$12,026 million of operating income, that is an aggregate operating margin of 19.1%, identical to that of fiscal 2025 (19.1%), well below the 2023 peak (29.0%) and well above the 2020 trough (negative). The starting fiscal year is already at mid-cycle and that is why no further adjustment is applied to it. Year 1 is anchored to the guidance in the 2026 half-year report: revenue of US$6,067 million in the first half, with operating income of 17.8% and attributable earnings of 16.8%, plus the published expectation that second-half sales and earnings before depreciation will hold in line with the first, which implies annual revenue close to US$12,100 million. The trough-and-recovery shape is deliberate: the revenue level fell from the 2023 peak and the path models a gradual recovery of 3.5% a year toward year 5, supported by greater drilling activity in the United States, Canada and Argentina and by offshore projects, with the Strait of Hormuz conflict as a drag. Depreciation and amortization is taken from the 20-F cash flow statement (US$616.2 million in 2025) because the corresponding XBRL concept has its window stopped at fiscal 2023 and does not represent the current period. Capital investment in 2025 (US$617.2 million) practically equals depreciation and, with revenue not growing, almost all of it is maintenance. The certificate path falls around 3% a year, below the revealed net reduction of the last two fiscal years (close to 7% a year), and is bounded by the capacity of free cash flow after the dividend. All per-share amounts are expressed in certificates, which is what trades in New York: each certificate represents two ordinary shares.

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 $66 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $58, 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 $66 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 $58. Against the current market price ($58), the margin of safety is 0.6% (trades below the maximum → there is margin) and the total return at that price would be 4.6% annually.

• Entry multiple. Trades at 16× on normalized attributable earnings for the year, within the commodities archetype band and without a significant discount to it.
• Point in the cycle. The 19.1% operating margin for fiscal year 2025 matches the aggregate for the six fiscal years 2020 through 2025: it is being bought at the midpoint of the cycle, not at the trough, which is where this type of business offers its margin of safety.
• Estimated total return. +5% annually over five years, with +2% of appreciation and +2% of dividend. It sits above inflation but below the 10% that represents the average expected return on stocks.
• Margin of safety. It trades close to intrinsic value, far from the required margin of safety. To require the 15% annual return that defines a great investment, one would need to pay -57% per ADS.

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

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (106%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on invested capital. The 13.5% on balance-sheet invested capital sits above the 10% bar and within the range of a good business, not an exceptional one, with earnings already normalized to mid-cycle.
• Cash generation. US$2,600 million of operating cash flow in 2025 against US$617 million of capital expenditure: the business converts earnings into cash with room to spare even in the middle of the cycle.
• Predictability. Low by definition: operating results over the recent cycle ranged from a US$663 million loss in 2020 to a US$4,316 million profit in 2023.
• Vertical integration. It produces its own steel in an electric arc furnace with direct-reduced iron in Argentina and processes it through to threaded and coated pipe, giving it control over cost and quality of the critical input.

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

The engine of this business is volume times price: tons of pipe shipped multiplied by the average selling price, which in turn depends on the steel grade, the connection type, and the share of sales sold with service. The 2025 read is a clean example of that breakdown: total volume was essentially flat — seamless pipe up 2%, welded pipe down 8% — yet segment sales fell 4%, meaning the entire pullback came from price. In the first half of 2026 the relationship partly reversed, with volume down 1% and average price up 2%, pushed by North American price increases and held back by the Middle East maritime transport disruption. Installed capacity utilization — 79% in steel bars, 65% in seamless pipe, 21% in welded pipe — is the third indicator to watch, because it directly measures the supply slack that price depends on.

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 (31-dic-2025): 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).

• Revenue trajectory. Two consecutive fiscal years of decline, from US$14,869 million in 2023 to US$11,981 million in 2025, with price as the cause and volume essentially flat.
• Current guidance. The 2026 half-year report states that second-half sales and pre-depreciation results will remain in line with the first half, implying fiscal year 2026 will come in just above 2025.
• Reinvestment runway. Capital expenditure matches depreciation and revenue is not growing: there is no runway to reinvest at high returns, so capital returns to the shareholder instead.
• Demand driver. Drilling is growing in the United States, Canada, and Argentina, and offshore projects are advancing, but unconventional drilling efficiency reduces the amount of pipe needed per barrel produced.

• Differentiated or undifferentiated product. Partly differentiated: the proprietary premium connections and high-pressure well pipe carry a technical barrier, but the base grade competes on price, and the report itself acknowledges that overcapacity has already reached beyond that grade.
• Pricing power. Limited. In 2025 volume was flat and sales fell 4%: the average price came down. In the first half of 2026 it rose 2% in response to higher demand and to offset higher raw material and logistics costs, according to the company's own report.
• Product relevance in ten years. High as long as wells keep getting drilled: casing and tubing have no technical substitute, and applications in geothermal, hydrogen, and carbon capture use the same capacity.
• Behavior in a cycle downturn. Fiscal year 2020 closed with a negative operating result of US$663 million on revenue of US$5,147 million. The business is not defensive: a downturn drives it into an operating loss.
• Supply-side capital cycle. Adverse. Two decades of investment in seamless pipe capacity without a matching increase in demand left an overcapacity the report calls acute; own-capacity utilization is 65% in seamless pipe and 21% in welded pipe.

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 cash $0 bn
• ✓Interest coverage (EBIT / interest)48.6x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 106% of ROIC
• !Value creation (ROIC − 10% bar)+4pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.0x
• ✓Float / working capitalFrees up cash $0 bn (float / negative WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.0% 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.

• Net cash position. Cash of US$573 million and current and non-current investments of US$3,065 million against total debt of US$306 million: US$3,300 million of net cash, as reported by the company.
• Leverage. The debt-to-total-equity ratio is 0.02 at year-end 2025 and 0.03 at year-end 2024, with the policy of keeping it low stated in the report.
• Interest coverage. Financial expense for the year was US$47 million against operating income of US$2,283 million and financial income of US$252 million: the financial position adds to results.
• Working capital. Working capital released US$48 million of cash in 2025, after releasing US$287 million in 2024: the unwind from the high part of the cycle is essentially complete.
• Exposure to state-owned customers. Pemex delayed payments and generated significant credit exposure that was only reduced toward the end of 2025; concentration among state-owned oil companies is structural to the business.

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.

Use of cash for fiscal year 2025: US$617 million of capital expenditure, US$900 million of dividends, and US$1,362 million of ADS buybacks, with no material acquisitions. The sum of dividends and buybacks exceeds the year's free cash flow (US$1,982 million), so the difference came from accumulated liquidity; that pace is not sustainable indefinitely, and that is why the projection caps the buyback at what cash flow supports after the dividend.

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

• Alignment. Family control of 64.37% of the capital and 68.34% of the votes as of Feb-28-2026, with the same person holding the chairmanship and the chief executive role: a long horizon and clear personal capital commitment, though Techint Holdings sold 23.6 million shares between December 2025 and February 2026.
• Shareholder returns. US$900 million of dividends and US$1,362 million of buybacks in 2025, with shares outstanding falling from 1,167.9 to 1,011.8 million between 2023 and 2025.
• Sustainability of the distribution. The sum of dividends and buybacks exceeded the year's free cash flow and came in part from accumulated liquidity; it is a defensible decision given the net cash position, but not extrapolable indefinitely.
• Minority governance. Without a proxy statement filed with the securities commission for the individual breakdown, and with concentrated voting control (68.34%), the minority shareholder does not decide on corporate transactions or on the use of capital.

• Missing buyers: a Luxembourg holding company under family control of 64.37% of the capital, trading in New York through ADSs while operating in Latin America, the Middle East, and Europe; the minority holder has no vote and the structure discourages the institutional investor that demands dispersed governance.
• The market applies the discount of an undifferentiated steel manufacturer, despite a mid-cycle operating margin of 19.1% and a net-cash balance sheet.
• Post-fiscal-year-end event: the armed conflict closed the Strait of Hormuz and severely affected drilling in Iraq, Kuwait, and Qatar, a market that together with the rest of Asia Pacific and Africa is 26% of tube sales.
• The stock is not coming off a collapse: there is no recent decline that demands an explanation, so the discount is not a recent market punishment but the ownership structure and the sector label.

The source of the discount is identifiable and is one of missing buyers, not a broken business: the family-controlled structure and Luxembourg domicile keep away a portion of institutional capital, and the sector classification as a steel manufacturer applies the multiple of an undifferentiated business to a company with proprietary premium connections, multi-year contracts with state-owned oil companies, and net cash. That said, the discount is not enough to constitute an opportunity: the starting year is already at mid-cycle rather than at the trough, capacity utilization reflects the overcapacity the report itself describes, and the price already prices in a moderate recovery. The edge would appear if the drilling cycle turned down and price followed; today the market's perception and the reality of the business are not far enough apart to pay up.

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 -8%/year (-33% total): the margin of safety protects the downside. The bull (+14%/year, +90% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Industry overcapacity. Described as acute in the annual report and extending beyond base grades; own-capacity utilization of 65% in seamless pipe and 21% in welded pipe is its direct measure.
• Oil and gas cycle. Demand is the number of wells drilled, completed, and reworked, which depends on the hydrocarbon price and on decisions by the exporters' group.
• Strait of Hormuz. The armed conflict disrupted maritime transport carrying close to 20% of the world's oil and liquefied gas, and severely affected drilling in Iraq, Kuwait, and Qatar.
• Argentina country risk. Argentine subsidiaries represent 13% of equity and 17% of sales, with exchange controls and macroeconomic volatility.
• Energy transition. Carbon taxes, emissions trading, and the European border adjustment add compliance cost and could reduce demand for traditional products.
• Physical facility risk. Veracruz sits in a seismic zone and Bay City, the largest plant with US$1,800 million of investment, sits in a hurricane zone; the company does not carry business-interruption insurance.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 3% at a PEG of 5.0 → expensive for its growth.

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

  Earnings yield 7% (EBIT/EV) + ROIC 14% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -7% vs our 3%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -11%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: cost advantage, intangibles, efficient scale, switching costs → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -7%, within what we project (3%) — the story squares with the numbers.