Mestek Inc. Earnings Thoughts
Just a quick update. I wrote about Mestek in my Q3 letter and why I invested in it. The other day Mestek released their Q3 earnings and the stock was off roughly 7%. Only 1000 shares traded so no real conclusion can be gleaned from Mr. Market’s infinite wisdom on that day in my opinion. Looking at the earnings report, I was kind of shocked it was down and not up.
Using the most recent 10Q, this is what the enterprise value looks like:
This might be the cleanest balance sheet on the OTC exchange. Cash and investments exceed the market cap and after making the necessary enterprise value adjustments brings the EV down to $47.6m. Book value per share is $65/share so the company is trading at 75% of book value and just under NCAV. For a declining business this might be the right price. But Mestek is not a declining business and if you look at the recent income statement, these are the highlights:
Commodity income in the quarter was $16.5 million and for the 9 months in 2025 was $78.3 million. This drops straight to the bottom line.
Stripping out the volatile commodity income, Mestek generated $14 million in operating earnings just in the quarter. In the past 9 months, Mestek has earned $37 - $38 million in operating income. With an EV of $47m, it’s at almost 1x EV/EBIT in the trailing 9 months.
Sales have increased about 10% compared to the last year period and in the first 9 months sit at $313m vs the prior 9 months of 2024 of $291m. The company has grown and doesn’t seem like it’s declining. It’s a pretty consistent, stable business.
The company now generates more income from the commodity portfolio that was started 10 years ago than from their business operations that was started in the 1940’s. Levered commodity bets are a powerful force. I’m no lawyer or Investment Company Act expert, but this seems like it’s bordering on being classified as an Investment Company. About 40% of it’s assets (ST inv. and commodities) make up total assets and it’s income from commodity trading is starting to tower over it’s main operating business, which are some key tests that determine whether you meet the Investment Company regulations.
Just doing a rough back of the napkin valuation, if you annualize the prior 9 months EBIT of $37m you’ll get $50m for the full year. Take out capex of about $5m and using a 21% tax rate gets you to $35m in free cash flow. Just over 1x EV/FCF for a consistently profitable business.
Obviously there are risks with the company: the commodities portfolio is a bit of a black box and the large cash balance could be used to diworsify or never be returned to shareholders. But it’s hard to get to a “no” when it’s trading at this current price. The CEO has shown he’ll buy a business at the right price if it comes along so I don’t think making an unreasonable acquisition is a huge concern.
My favourite part of investing in Mestek is picturing the CEO trading the corporate commodity portfolio in complete isolation from the actual operations of the business from his massive mansion in West Chesterfield and absolutely crushing the market.
I remain long the stock and view it as an interesting way of playing the commodity renaissance taking place in the world today. You have a stable, profitable HVAC business with a smaller metal forming segment that has a large commodity portfolio attached to it that provides some significant downside protection.