Ternium S.A. (TX)

Total return at 5 years: 5.1%/year = 2.7% appreciation + 2.3% 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 $121 · Multiples $59) exceeds the market price ($58).

Today — fairly valued: at $58 trades ~2.5% below its value discounted to today (~$59); 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 ~$38.

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 (-12.0%/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 ~$0.5 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 Utilidad atribuible normalizada a mitad de ciclo (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Annual reporter convention: Ternium 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 window. The year-0 revenue level is the reported one (US$15,609 million); year-0 profitability is normalized to mid-cycle, which is the central judgment for this company. The normalization is computed on the reported series of attributable earnings for 2020-2025 —US$778M, US$3,825M, US$1,768M, US$676M, −US$54M and US$425M— discarding the 2021 super-cycle peak and the 2024 loss: the average of the four remaining fiscal years is US$912 million, or 5.84% of year-0 revenue. Neither the peak nor the trough is extrapolated. The year-0 operating margin is normalized on the same criterion, to the 2022-2025 average of 10.15%, corroborated by the first half of 2026 (9.9%: operating income of US$818 million on sales of US$8,274 million). The starting point of the revenue path is the actual first-half 2026 growth reported in the 6-K —US$8,274 million against US$7,880 million, +5.0%—, which is the most recent figure and replaces the extrapolation of the −11.6% of fiscal 2025. Year +1 capital investment is anchored to the published guidance of US$1,900-2,100 million and declines afterward, as the Pesquería Industrial Center completes the cold rolling mill, the galvanizing line and the new steel shop. The dividend is taken from the one approved at the meeting of 12-May-2026: US$0.22 per share, that is US$2.20 per certificate; the board had proposed US$0.27 per share (US$2.70 per certificate) in the 20-F and the meeting approved a lower amount, a discrepancy resolved in favor of the later filing. All per-share amounts in the model are expressed per certificate, and each certificate represents ten 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 $59. Against the current market price ($58), the margin of safety is 2.5% (trades below the maximum → there is margin) and the total return at that price would be 5.1% annually.

• Valuation base. It is valued on mid-cycle earnings (US$912 million), not on fiscal 2025 earnings or on the 2021 peak: in a market-priced business, extrapolating either extreme is the classic error.
• Exit multiple. 11 times mid-cycle earnings, within the range for its category and toward the low end because of return on capital, a narrow moat and cyclicality.
• Entry point. At $58 per ADS the price has already traveled much of the way: much of the cycle's normalization is already in the price.
• Dividend contribution. The approved dividend of US$2.20 per ADS yields 2.2% on the current price and accounts for a meaningful portion of the estimated total return.

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

• ✕ ROIC exceeds the cost of capital (~10%)
• ✕ CFROIC backs up the ROIC (48%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. 2.9% in fiscal 2025 and 6.6% normalized to mid-cycle, in both cases below the 10% bar.
• Cash-flow predictability. Operating cash flow held between US$1,906 and US$2,753 million over the last four fiscal years despite the swing in earnings, supported by working-capital release at the bottom of the cycle.
• Capital intensity. 2025 investment was 3.2 times depreciation; even at a steady state, an integrated steel system requires constant fixed-asset replacement.
• Vertical integration. Own iron-ore mines in Mexico and Brazil and proprietary power generation reduce exposure to input volatility, though they do not cover the full requirement.

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

Ternium's revenue breaks down into tons shipped times revenue per ton, both in steel and in iron ore: it is the direct way to separate what is volume from what is market price. In 2025 both steel levers moved unfavorably at once — volume −4% and price −10% — while mining sustained revenue with volume. Mining shipments include sales to the group's own plants, which are eliminated on consolidation, so its revenue per ton is not entirely an observed market price.

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).

• Volume. Steel shipments fell 4% in 2025, to 15,060 thousand tons; iron ore shipments grew 14%, to 12,951 thousand tons.
• Price. Revenue per ton of steel fell 10%, from US$1,081 to US$978, tracking the price in the markets where it operates.
• Reinvestment runway. It exists and is underway: the new Pesqueria steel mill adds 2.6 million tons a year and substitutes imported slab, with start-up expected by the end of 2026.
• Recovery underway. The first half of 2026 shows sales of US$8,274 million (+5.0% year over year) and operating income of US$818 million versus US$331 million a year earlier.

• Ten-year relevance. Flat steel will keep being an input for construction, the automotive industry and appliances; the question is not whether the product exists but who produces it at the lowest cost.
• Differentiated product. It is mostly a market-priced product; only the high-strength and coated steels for the automotive industry allow for genuine technical differentiation.
• Pricing power. None on the base price: in 2025 revenue per ton fell 10%, tracking realized prices in the markets where it operates.
• Operating leverage. Very high and double-edged: revenue fell 11.6% in 2025 and operating income fell 44%, with the margin compressed from 7.2% to 4.5%.
• Behavior in a downturn. The attributable-earnings series went from US$3,825 million in 2021 to a loss of US$54 million in 2024: the amplitude of the cycle is the business's dominant feature.

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)7.4x
• –Liquidity (current ratio)no data
• ✕Cash quality (CFROIC vs ROIC)CFROIC backs 48% of ROIC
• ✕Value creation (ROIC − 10% bar)-7pp
• !Malinvestment test (capex vs incremental ROIC)Capex/D&A 3.4x
• –Float / working capitalNeutral 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 and financial investments of US$3,131 million against total financial debt of US$2,419 million: a net cash position of US$712 million, a material and unusual cushion for a steel producer at the bottom of the cycle.
• Maturity profile. Of total financial debt of US$2,419 million, US$604 million matures in 2026, US$297 million in 2027 and US$1,517 million in 2028 or later; the noncurrent portion is US$1,815 million.
• Interest burden. Interest expense in 2025 was US$214 million, covered more than three times by operating income even in the most depressed year of the period.
• Free cash flow. Negative US$187 million in 2025 because of capital expenditure of US$2,501 million (cash basis) against operating cash flow of US$2,314 million: this is capital deployment, not operating deterioration.
• Working capital. Released US$1,035 million in 2025 from destocking specific to the bottom of the cycle; that release reverses as volume recovers and is not credited in owner earnings.

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.

In 2025 capital allocation was almost entirely reinvestment: US$2,659 million of capital expenditure against US$530 million of dividends paid, with no buybacks (treasury shares held steady at 41,666,666 shares). Capital expenditure exceeded operating cash flow of US$2,313 million, so the difference was funded from cash and financial investments on the balance sheet. On the dividend there is a discrepancy between filings to note: the 20-F reports a board proposal of US$0.27 per share, and the subsequent 6-K reports that the shareholders' meeting on May 12, 2026 approved US$0.22 per share (US$2.20 per ADS), with a final balance of US$0.13 per share paid on May 15. The approved amount is used, being the later filing. The approved amount also represents a 29% cut from the US$3.10 per ADS declared for fiscal 2024 (US$2.90 in 2023): the series is cyclical, not steadily growing. The dividend projection assumes moderate growth of 3% a year from the reduced level, supported by the recovery in operating income in the first half of 2026 (US$818 million versus US$331 million a year earlier) and by the decline in capital expenditure toward the US$1,900-2,100 million guidance for 2026, which frees up cash to sustain the payout.

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

• Tenure. The chief executive officer has been with the group since 1992 and has run the company since 2018; his predecessor led it for thirteen years and remains vice chairman of the board.
• Alignment. An industrial controlling shareholder with 76.5% of the capital and a decades-long horizon, although the direct holding of directors and executives as a group is insignificant (0.00% of capital).
• Compensation. Directors receive fixed compensation with no variable component or long-term incentive plan, which avoids incentives to force a given year's result.
• Dividend policy. The May 2026 shareholders' meeting approved US$0.22 per share against the US$0.27 the board had proposed in the 20-F — a 29% cut from the US$3.10 per ADS in 2024 (US$2.90 in 2023) — with no explanation in the filing.

• The bottom of the cycle is already behind it and visible: fiscal 2025 closed with the operating margin at 4.5%, the lowest of the period, which leaves the multiple on reported earnings optically high just as profitability begins to recover.
• Negative free cash flow from voluntary growth investment: US$2,501 million invested (cash basis) against depreciation of US$788 million, which a naive cash-flow-yield screen reads as weakness and is in fact capital deployment.
• A hard-to-follow corporate structure: a Luxembourg holding company, Techint group control at 76.5%, a consolidated Brazilian subsidiary with noncontrolling shareholders that absorb a material portion of the result, and a public float of only 21.4% of the capital.
• Concentrated jurisdictional risk in Mexico, Brazil and Argentina, with exchange controls and open corporate litigation that many investors prefer not to evaluate.

The price has already traveled much of the way: at $58 per ADS, the market is already pricing in the recovery shown in the first half of 2026 — operating income of US$818 million versus US$331 million a year earlier. Events after fiscal year-end that must be disclosed: the stake in the Usiminas control group rose to 83.1% in February 2026, Tubos Argentinos was acquired in the first quarter, and the shareholders' meeting on May 12, 2026 approved a dividend of US$2.20 per ADS, below the US$2.70 the board had proposed and a 29% cut from the US$3.10 per ADS in 2024. The discrepancy and the cut are relevant facts for anyone buying for the dividend.

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 -10%/year (-40% total): the margin of safety protects the downside. The bull (+17%/year, +121% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Trade barriers. A 50% tariff in the United States since June 2025 and antidumping duties on corrosion-resistant products from Mexico and Brazil since December 2025.
• Global overcapacity. Chinese exports rose from 53 million tons in 2020 to 117 million in 2024, with close to 70% of what Brazil imported in 2025 of that origin.
• Corporate litigation in Brazil. Brazil's superior court reversed its favorable decision in June 2024 and ordered indemnification of CSN over the 2012 acquisition of the stake in Usiminas; appeals remain open.
• Currency and capital-control risk. In Argentina, dividend remittances for fiscal years prior to 2025 remain subject to central bank approval, rarely granted.
• Safety at mining operations. The deterioration of security in the municipality where Las Encinas operates shut down the main mining operation during the first half of 2023.
• Noncontrolling interest. In 2025 the noncontrolling interest absorbed a loss of US$122 million (attributable earnings of US$425 million exceeded consolidated earnings of US$303 million); in 2024 the opposite occurred: it took US$227 million from consolidated earnings of US$174 million and left Ternium with a loss of US$54 million. The volatility of the split is the real risk.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 3% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 4% at a PEG of 3.6 → expensive for its growth.

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

  Earnings yield 14% (EBIT/EV) + ROIC 3% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -12% 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 -13%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

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

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -12%, within what we project (4%) — the story squares with the numbers.