HY Intrinsic Valuation Memo (DCF)

1) Business snapshot

Hyster‑Yale, Inc. (HY) is a materials-handling OEM (forklifts / lift trucks) with an attachments business (Bolzoni). The economics are cyclically exposed to industrial activity, logistics/warehousing capex, and dealer inventory behavior.

Moat (practical)

Brand + installed base (parts/service pull-through)
Dealer/distribution footprint
Application know-how and product breadth

Key risks (value drivers)

Cycle timing: volume whipsaws, fixed-cost absorption
Tariff/material shocks: cost headwinds and pricing lag
Working capital: inventory/receivables dominate cash flow at turns
Leverage in trough: net debt matters most when margins compress

Cycle reality check

EBIT range

-5.0% (FY2021) to +5.7% (FY2024)

FCF volatility

-9.7% margin (FY2021) to +4.1% (FY2020)

Normalization is required before choosing terminal economics.

2) Historical trend & cycle normalization (FY2020–FY2024)

5-year historical dataset (USD $m; shares in millions)

FY	Revenue	EBIT	EBIT %	CFO	Capex	FCF (CFO−Capex)	FCF %	Cash	Debt	Net debt	Shares
2020	2,812.1	49.9	1.8%	166.9	51.7	115.2	4.1%	151.4	289.2	137.8	16.805
2021	3,075.7	-152.3	-5.0%	-253.5	44.3	-297.8	-9.7%	65.5	518.5	453.0	16.827
2022	3,548.3	-39.1	-1.1%	40.6	28.8	11.8	0.3%	59.0	552.9	493.9	16.939
2023	4,118.1	208.7	5.1%	150.7	35.4	115.3	2.8%	78.8	494.0	415.2	17.186
2024	4,308.0	244.8	5.7%	170.7	47.8	122.9	2.9%	96.6	440.7	344.1	17.419

Working-capital intensity (simple operating proxy)

FY	AR	Inventory	AP_total	NWC_simple	NWC % sales
2020	412.1	509.4	428.1	493.4	17.5%
2021	457.4	781.0	541.4	697.0	22.7%
2022	523.6	799.5	607.4	715.7	20.2%
2023	497.5	815.7	530.2	783.0	19.0%
2024	488.4	754.3	455.5	787.2	18.3%

Normalization metrics (FY2020–FY2024)

Revenue CAGR (FY2020→FY2024): ~11.3% (depressed base in FY2020; do not extrapolate).
EBIT margin: range -5.0% to 5.7%; median ~1.8%.
FCF margin: range -9.7% to 4.1%; median ~2.8%.
Capex % sales: median ~1.1%.
Working capital intensity: NWC proxy median ~19.0% of sales.

One-offs and cycle markers (details)

Trough: FY2021 (loss and heavy working-capital cash burn).
Recovery: FY2023–FY2024 (EBIT ~5–6%).
Charges: FY2024 includes restructuring & impairment charges; FY2023 includes a larger restructuring/impairment line-item; FY2021 included goodwill and long-lived asset impairments.

Note: this HTML file keeps the same level of specificity as the memo; it does not add new numbers.

3) Recent financial anchor (FY2024 + latest interim context)

FY2024 audited anchor

Revenue $4,308.0m; operating profit $244.8m.
Operating cash flow $170.7m; capex $47.8m.
Year-end cash $96.6m; net debt ~$344.1m.
Interest expense $25.8m (used for cost-of-debt sanity checks).

9M 2025 (through Sept 30, 2025): downcycle / margin squeeze

9M revenue $2,846.1m vs $3,240.7m prior-year period.
9M operating profit $15.1m vs $212.5m prior-year period.
9M operating cash flow $29.6m vs $90.0m prior-year period.
Management commentary highlighted tariff-related costs (~$40m discussed for Q3) and lower volumes as headwinds.

Forecast implication: treat 2025 as trough-ish and normalize gradually rather than extrapolating FY2024 margins.

4) Key drivers & assumptions

Facts are the history tables above; items below are explicit modeling assumptions (conservative versus FY2023–FY2024 given 2025 YTD weakness).

Base case assumptions (tied to history)

Revenue path (2025 trough → gradual recovery): 2025E $3,825m; then $3,950m → $4,100m → $4,275m → $4,450m by 2029E.
EBIT margin normalization: 2025E 0.5% rising to 3.5% by 2029E (below FY2024 peak ~5.7%).
Cash tax rate: 28% (conservative global industrial proxy).
D&A: 1.4% of sales (assumption).
Capex: 1.3% of sales (slightly above historical median ~1.1%).
Operating NWC: 20% of sales (proxy median ~19%).
Terminal growth (g): 1.75% (cyclical mature growth range).

5) Discount rate (WACC) with math

WACC is intentionally conservative for a cyclical industrial profile.

WACC inputs and calculation

Risk-free (10Y UST): 4.18%
ERP (assumption): 5.0%
Beta (assumption): 1.4
Small/cyclical premium (assumption): 1.0%

Cost of equity Ke = 4.18% + 1.4 × 5.0% + 1.0% = 12.18%

Pre-tax cost of debt Rd (assumption): 6.0%
Tax rate (assumption): 28%
After-tax Rd = 6.0% × (1 − 0.28) = 4.32%

Weights (assumption): 70% equity / 30% debt
WACC = 0.70 × 12.18% + 0.30 × 4.32% ≈ 9.82% → 10.0%

6) DCF results (EV → equity → intrinsic value per share)

Method: Unlevered DCF (FCFF), 2025–2029 explicit + terminal (Gordon growth).
Base WACC: 10.0%
Base terminal growth: 1.75%
Net debt used: FY2024 net debt ~ $344.1m
Shares: FY2024 ~ 17.419m

Case	Enterprise value (EV)	Net debt (2024A)	Equity value	Shares (m)	Intrinsic value / share	Terminal g	WACC	Terminal value % of EV
Bear	524.3	344.1	180.2	17.419	$10.34	1.50%	10.0%	57.8%
Base	893.5	344.1	549.4	17.419	$31.54	1.75%	10.0%	69.9%
Bull	1,283.1	344.1	939.0	17.419	$53.91	2.25%	10.0%	70.1%

Sanity check: Base case terminal value share is ~69.9% of EV (high-ish but typical for 5-year DCFs). Conservatism comes from weak 2025 margin, sub-peak terminal margin, and modest terminal growth.

7) Sensitivities

Sensitivity: WACC ±1% and terminal growth (intrinsic value / share, USD)

g \ WACC	9%	10%	11%
1%	32.7	23.3	17.1
2%	41.5	29.5	21.5
3%	54.0	37.9	27.4
4%	72.8	51.1	36.4

Heatmap shading is purely visual (relative within the table); it does not change any figures.

Sensitivity: Terminal EBIT margin (value/share)

Terminal EBIT margin	Value/share
2.5%	$14.31
3.0%	$22.93
3.5% (Base)	$31.54
4.0%	$40.16
4.5%	$48.78

Interpretation: for this business, normalized margins are the primary valuation lever.

8) "Grandma-safe" conclusion

Base intrinsic value: $31.54/share
Bear/Base/Bull range: $10.34 / $31.54 / $53.91
Margin of safety used: 35% (cyclical + meaningful net debt)
Grandma-safe buy zone: $20.50/share

Top 5 valuation breakpoints

Sustained mid-cycle EBIT margin: 3% vs 4% vs 5% changes the thesis.
Tariffs/cost headwinds: duration and pricing catch-up.
Working capital discipline: inventory + AR behavior at cycle turns.
Net debt trajectory: deleveraging vs stagnation.
Restructuring cadence: keep "one-offs" from becoming recurring.

Uncertainty is not a bug; it's the point. The decision frame is about paying with a cushion against the parts you can't control.

9) If an entry price was provided

No entry price was provided, so this report does not compute yield/margin-of-safety comparisons versus price.

Narrative companion (Writing Mode)

HY is the kind of company that looks calm when you stare at the logo and chaotic when you stare at the cash flow statement.

In good years, the business behaves like a well-run machine shop: volume rises, factories absorb fixed costs, and pricing feels civilized. FY2024 is that picture: about $4.3B of sales and ~5.7% operating margin.

In bad years, the same machine shop behaves like it's carrying a backpack full of rocks — the rocks are inventory and receivables. FY2021 is the cautionary tale: operating losses and a sharp cash outflow from operations.

Then 2025 shows up and reminds us why "cycle-normalizing" is not an academic term. Through the first nine months of 2025, operating profit fell to $15.1m on $2.85B of revenue, and management highlighted tariff-related cost headwinds and lower volumes as pressure points.

So the valuation does the boring-but-safe thing: it does not assume 2024 is permanent. It treats 2025 as trough-ish and then lets margins crawl back, not leap. The base case caps steady-state operating margin at 3.5%, below FY2023–FY2024 highs but above the weaker parts of the last cycle.

That produces a base intrinsic value of about $31.54/share, with a wide range because the cycle is wide: about $10.34 in a bear case and $53.91 in a bull case.

And here's the grandma-safe logic: with cyclical equipment makers, the goal isn't to be right about next quarter — it's to avoid paying a "good year" valuation for a business that is currently having a "bad year." A 35% margin of safety sets the buy zone at about $20.50/share. The future is a range, not a point.

Evidence notes (high level)

Audited annual reports for FY2024, FY2022, FY2021 (for multi-year history and working-capital items).
Q3 2025 earnings release (3 and 9 months ended Sept 30, 2025).
10-year Treasury context for risk-free rate.