ESAB Corporation (ESAB): what the price assumes

In the published model solve dated 2026-Q2, anchored at $76.43, ESAB Corporation (ESAB) is priced for +10.2% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-08-30 · Exported: 2026-08-31 · Source: https://boothcheck.com/report/ESAB

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 8.5% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Growth Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.3%); the inversion above states its own rate.

Per-Model Detail (n=13)

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• Two thirds of revenue is Consumables, the filler metals and gases that get burned through on a job and reordered, which makes this less an equipment manufacturer than a supplier of things customers cannot stop buying.
• The company bought Eddyfi Holding on June 1, 2026 for 1.45 billion dollars in cash, funded with new senior notes, a mandatory convertible preferred issue and fresh common stock, on a balance sheet that already carried borrowings of about 2.5 times operating profit.
• Second-quarter results land August 6, 2026 and will include one month of Eddyfi plus an updated full-year outlook that the May guidance did not contain.

Bull Case

Start with what the market is actually asking for. At today's price the company is valued at roughly 15 times company-wide operating income, an amount that implies operating profit compounding at about 6% a year for the next five years. That is not a demanding number. It sits inside what the company has recently delivered, and against its own peer group the multiple falls in the lower half of the range. The market, in other words, is pricing a slightly-better-than-industrial-average outcome for a business that does not look slightly-better-than-average.

The reason it does not is buried in the revenue mix. Consumables are 66% of sales and Equipment the other 34%. Welding consumables are bought by the drum, consumed on the job and reordered the following month, and they are specified into procedures that are expensive to requalify. The 10-K puts the competitive requirements plainly: "We believe the principal elements of competition in our served markets are the technical ability to meet customer specifications, product quality and reliability, brand names, price, application expertise and engineering capabilities, timely delivery and strong aftermarket support." Every item on that list except price favours the incumbent with the largest installed base and the deepest distribution.

The margins show it. ESAB's trailing operating margin runs about 14.5%. Inside its own comparable set, RRX earns 11.2% and TKR 12.1%, GTES 13.1% and FLS 8.3%, while CW at 18.4% is the only clear step above. A company selling industrial consumables into cyclical end markets and out-earning most of the diversified industrials around it is doing something structurally right, and the something is the reorder.

The operating system underneath is a compounder's playbook run without much drama. The 10-K describes a company "built through a series of acquisitions, as well as organic growth", and it completed four of them during 2025 alone, including Bavaria Schweisstechnik in submerged-arc welding in April and DeltaP in June. Selling, general and administrative expense fell in 2025 on lower employee costs and internally driven savings, even while the acquisitions added cost. Buying small niche businesses and taking cost out of them is not a thesis on its own. Doing it repeatedly, with the margin moving the right way, is.

Eddyfi is the same move at a much larger size and in a deliberately different direction. Management describes the target as advanced non-destructive testing instrumentation used to assess the structural integrity of critical assets across nuclear power, aerospace, defence and infrastructure, and frames the deal as accelerating a shift toward a business that is faster growing, higher margin and less cyclical. Inspection is adjacent to welding in the most literal sense: the same weld that ESAB's consumables create is the thing an inspection instrument is pointed at. If the integration works, the reorder base widens from the material to the verification.

Bear Case

The methods split about as hard as they can here, and which side you believe is the entire argument. Peer multiples and the cash-flow approaches both land in the neighbourhood of today's price. The methods anchored on book value and profitability land far below it, with the price about 129% above where the asset-value family sits, and the earnings-power methods land further below still, with the price about 228% above them. The conservative side of that split deserves more weight than usual, because of why it lands where it does.

The book-value methods land near book value because the company earns almost nothing above its cost of capital. Return on equity runs about 9.5% on the trailing figures against a cost of equity of roughly 9.3%. An excess-return calculation on a spread that thin produces almost no excess, which is why those methods converge close to the stated book value per share of $35.76 rather than somewhere above it. That is not a modelling artifact. It is the arithmetic of a business earning roughly its required return on the capital already invested.

The growth that gets capitalized is also worth inspecting. In the March quarter, volumes fell on logistics disruption in the Middle East tied to the war in Iran and on lower shipments into Russia, and the decline was "more than offset by $42.8 million of Net sales from the Bavaria, DeltaP, Aktiv and EWM acquisitions and $27.5 million in favorable foreign currency impact." Acquisitions and the exchange rate did the work. The same tension shows up across 2025, where gross profit rose on deals, currency and volume but was held back by "lower pricing and higher material costs", with the filing describing the combination as leading to margin compression. Restructuring charges rose $8.6 million in 2025 and another $7.3 million in the March quarter. A compounder that has to keep restructuring the businesses it bought is paying twice.

Then there is the funding. Eddyfi cost 1.45 billion dollars in cash against a company whose entire market value is a little over five billion, and it was paid for with senior notes carrying a 5.625% coupon due 2031, 175.0 million dollars of gross proceeds from a 6.50% mandatory convertible preferred issue, 143.0 million dollars of common stock sold to institutional investors, and cash on hand. The preferred converts into common in roughly three years whatever the share price does. Interest expense and other, net had already increased $8.8 million in the March quarter, including $4.8 million of costs on the bridge loan used to fund the deal, before the permanent financing was in place. Borrowings stood at about 2.5 times operating profit before any of that.

None of which means the deal is wrong. It means the bear case no longer needs the cycle to turn to hurt. It needs only for Eddyfi to integrate slowly. The company has bet a quarter of its market value plus permanent dilution on an inspection business in a portfolio built around consumables, and the conservative methods are pricing what the company has demonstrated rather than what the deal is supposed to add. On this record, the conservative methods have the better claim.

Valuation

The starting point is modest. Today's price works out to roughly 15 times company-wide operating income, and inverted, that implies operating profit growing about 6% a year for five years. Measured against what the company has recently delivered, the rate itself is unremarkable; the demand is that it persists. The calculation runs at a 9% cost of capital with 4% terminal growth, and it is sensitive to that input: each additional percentage point of cost of capital moves the implied growth requirement by roughly 6.1 points. That sensitivity is worth holding onto, because it means the priced-in assumption says as much about the discount rate as about the business.

Where the methods disagree tells the more interesting story. Peer-multiple approaches land just above today's price, and the discounted cash-flow approaches land close to it, one by projecting free cash flow at 7% growth and the other by assuming the enterprise multiple the shares trade on now still holds at the end of a six-year projection, held flat, with the bear scenario compressing it and the bull expanding it. The asset-value and earnings-power methods do not come close: the price sits about 129% above where the asset-value family lands and about 228% above the earnings-power family.

That gap has a single cause, and it is not conservatism for its own sake. One set of methods capitalizes normalized operating income and free cash flow assuming no growth at all. The other starts from the equity already sitting on the balance sheet and credits only what the company earns above its required return, and that spread is thin: a return on equity of about 9.5% against a cost of equity of roughly 9.3%. Both are asking what the business is worth if it stops compounding. The answer is a lot less than the price, which is another way of saying the price is paying for the acquisition engine, not for the installed base.

Against the comparable set the operating economics are on the strong side. Trailing operating margin runs about 14.5%, above RRX at 11.2%, TKR at 12.1% and GTES at 13.1%, and roughly level with GRC at 14.5%. What the cohort does not settle is the multiple, since these businesses are priced on how much of their growth the market believes is durable rather than bought.

Solvency is the part that moved most recently and the part the trailing figures have not caught up with. Borrowings ran about 2.5 times operating profit as of the April balance sheet, with liquid assets close to a billion dollars against them, and the share count had barely moved over four years, growing about 0.5% a year. Then on June 1 the company paid 1.45 billion dollars in cash for Eddyfi, financed with senior notes, a mandatory convertible preferred that will turn into shares in about three years, and 1,254,255 newly issued common shares. Both the leverage and the share count are structurally different on the other side of that transaction, and the second-quarter report is the first to show it.

Catalysts

The defining event has already happened and has not yet been reported on. ESAB completed its acquisition of Eddyfi Holding Inc. on June 1, 2026, paying 1.45 billion dollars in cash subject to customary adjustments, and funded it with cash on hand, proceeds from an offering of 5.625% senior notes due 2031, a private placement of 175,000 shares of 6.50% Series A Mandatory Convertible Preferred Stock for about 175.0 million dollars gross, and 1,254,255 common shares sold for about 143.0 million dollars gross. Eddyfi makes non-destructive testing instrumentation, employs more than 1,000 people and serves customers in more than 110 countries.

Second-quarter results are scheduled for August 6, 2026. The company has said that quarter will include one month of Eddyfi's results, which the outlook issued on May 7 did not reflect, and that updated full-year guidance including Eddyfi will come on that call. So the print carries two separate pieces of new information: the first partial quarter of the acquired business, and the first framing of what management thinks the combined company earns.

The sell side has been moving in both directions around it. Roth Capital raised its target to $151 from $142 on July 7, 2026, and Stifel trimmed its target to $137 from $141 on July 24, 2026 while keeping a Buy rating. Both sit well above the current share price, and the reason is straightforward: those targets are built on the combined company, while the trailing figures behind the valuation lenses here contain no Eddyfi at all. The August print is where those two views start to be measured against the same numbers.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• RRX (REGAL REXNORD CORP)
• FY2025 10-K: …have an adverse effect on our business, results of operations and financial condition. In certain markets, customers exercise significant power over business terms. There is substantial and continuing pressure on major OEMs and larger distributors to reduce costs, including the cost of products purchased from outside…
• FY2025 10-K: …based on the segment's income from operations. The Company also regularly provides to the CODM information on adjusted cost of sales and adjusted engineering, selling and administration expenses, which are significant expenses. The following sets forth certain financial information attributable to the Company's…
• GTES (Gates Industrial Corporation plc)
• FY2025 10-K: …to grow or maintain our competitive position or margins. We compete in a wide variety of end markets with a broad portfolio of products. Our ability to compete effectively in each end market depends on how successfully we anticipate and respond to various local competitive factors, such as product offerings, customer…
• FY2025 10-K: …a variety of industrial and automotive customers. Our industrial OEM customers cover a diverse range of industries and applications and many of our largest OEM customers manufacture construction and agricultural equipment. 32 Table of Contents During Fiscal 2025, we realized modest growth in our aftermarket channel…
• TKR (TIMKEN CO)
• FY2025 10-K: Industrial Corp. The e-business service focuses on information and business services for authorized distributors. Timken has entered into individually negotiated contracts with some of its customers. These contracts may extend for one or more years and, if a price is fixed for any period extending beyond current…
• FY2025 10-K: …condition or results of operations could be negatively affected. Risk Relating to our Business The bearing and industrial motion industries are highly competitive, and this competition results in significant pricing pressure for our products that could affect our revenues and profitability. The global bearing…
• MOG-A (MOOG Inc.)
• FY2025 10-K: …market specialize in thrust vector controls and spacecraft engines, mechanisms, avionics and structure systems and components. Competitors in our defense market produce turreted weapons, missile steering actuation and power and data transfer systems and components. Competitors to our Industrial segment include other…
• FY2025 10-K: …resources. Within the aerospace and defense industries, suppliers have consolidated to expand their product offerings and to secure long-term sole-source positions. As a result, these competitors may be better able to withstand the effects of periodic economic downturns. Our sales and operating margins will be…
• HLIO (HELIOS TECHNOLOGIES, INC.)
• FY2025 10-K: …costs as a percentage of sales and the net impact of tariffs. Operating income as a percentage of sales decreased 230 basis points to 7.9% in 2025 compared with the prior year period. Operating margin was unfavorably impacted during 2025 most significantly from a goodwill impairment of $25.9 in the third quarter of…
• FY2025 10-K: …change totaled $0.7. During 2025, gross profit increased $9.9, 11.4%, primarily due to higher volume and increased productivity, partially offset by higher material costs and freight and duties. Freight and duties included a $2.4 expense related to a product import classification change. Gross margin increased 10…
• GRC (The Gorman-Rupp Company)
• FY2025 10-K: Gross margin 30.6 % 31.0 % Gross profit was $209.1 million for 2025, resulting in gross margin of 30.6%, compared to gross profit of $204.3 million and gross margin of 31.0% for the same period in 2024. Gross profit for 2025 included $2.7 million of one-time facility optimization costs. The 40 basis point decrease in…
• FY2025 10-K: …Pricing pressures may require the Company to adjust the prices of its products downward to stay competitive. The Company may not be able to compete successfully with its existing competitors or with new competitors. Failure to compete successfully could negatively impact the Company's sales, operating margins and…
• FLS (FLOWSERVE CORP)
• FY2025 10-K: …Company's products and services are based on technological advances. In addition, the Company will need to compete for talent that is familiar with such technologies, including upskilling its workforce. There can be no assurance that the Company will continue to compete effectively with its industry peers as new…
• FY2025 10-K: …this Annual Report. Business Functions Our business segments share a focus on industrial flow control technology and have a number of common customers. These segments also have complementary product offerings and technologies that are often combined in applications that provide us a net competitive advantage. Our…
• CW (CURTISS-WRIGHT CORPORATION)
• FY2025 10-K: …in highly competitive markets. Many of our products and services are sold in highly competitive markets, and are affected by varying degrees of competition, including competition for hiring and retaining skilled labor. We compete against companies that often have higher sales volumes and greater financial,…
• FY2025 10-K: …investments in research and development ("R&D") to fuel both innovation and organic growth. We also utilize a strong and healthy balance sheet to implement a disciplined capital allocation strategy prioritized by acquisitions as well as returns to shareholders, principally through share repurchases as well as…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.