Qnity Electronics, Inc (Q)

Conclusion

Qnity Electronics, Inc. supplies materials to the semiconductor and electronics industries, including chemical mechanical planarization pads and slurries, photoresists, and copper plating and packaging materials. At a price of 125.09 USD on 2026-11-09, the market capitalisation is 26.1 billion USD and the enterprise value is 29.0 billion USD.

The verdict is overvalued. The company trades at 46.9 times earnings, 19.6 times enterprise value to EBITDA and 33.7 times free cash flow, but the ten-year medians for these multiples are not available, so the premium cannot be measured against history. The discounted cash flow gives 89.74 USD per share at a discount rate of 9.9%. The fair value band runs from 71.79 to 107.69 USD with a midpoint of 89.74 USD, a margin of safety of -28.3%. The price implies revenue and cash flow growth of 15.6% a year over the reverse discounted cash flow horizon, while revenue grew about 0.0% a year over the last three years and earnings per share fell 3.7% a year.

The balance sheet and the earnings quality hold the case up: the Altman Z-score is 3.09, free cash flow was 1.39 times net income on a trailing basis, and the company beat earnings estimates in all six of the last six quarters. The weakest numbers are the return on invested capital of 7.9% against a weighted average cost of capital of 9.2%, the interest coverage of 4.6 times, and the flat revenue. If next year's earnings growth of 14.0% does not arrive, the current price rests on a growth rate the company has not yet delivered.

Financial health

Financial strength is green, held up by a current ratio of 2.09, net debt to EBITDA of 1.96 and an Altman Z-score of 3.09, and held back only by interest coverage of 4.6 times, which is assessed as neutral. The quick ratio is 1.53 and debt to equity is 0.53. The Altman model was designed for manufacturers, and the company is a materials supplier, so its zone of 3.09 should be read with that in mind. The Ohlson model estimates insolvency risk as low, at about 0.3% over one to two years, based on figures as of 2025-12-31. The balance sheet gives the company room to absorb a slowdown, though its debt is still a real claim on cash flow.

Earnings quality

Earnings quality is green. Trailing free cash flow was 1.39 times net income, and the accrual ratio of -4.4% shows that reported earnings are backed by cash. Stock-based compensation is 1.0% of revenue, and free cash flow after it is 722 million USD. The five-year free cash flow conversion and the five-year change in share count are not available. The Piotroski score is 4 out of 9, which is neutral. The Beneish M-score of -3.71 is read as unlikely to indicate manipulation. The company beat earnings estimates in all six of the last quarters, with an average surprise of 24.5%. Analysts raised the current-year estimate by 11.3% over 90 days, with seven upward revisions and no downward ones in the last 30 days.

Profitability

Profitability is green on the margins and neutral on returns. The gross margin is 45.1% against a ten-year median of 44.4%, and the operating margin is 21.0% against a median of 20.4%. The net margin of 10.2% is below its median of 15.3%. The return on invested capital is 7.9%, against a weighted average cost of capital of 9.2%, and the given difference is -1.3%, which is neutral. The five-year median of the return on invested capital is 6.4%. The return on equity is 7.4%. The DuPont split as of 2025-12-31 shows a net margin of 14.6%, an asset turnover of 0.34 and an equity multiplier of 1.98, so the return on equity is driven by margins rather than by leverage. Returns on capital do not yet exceed the cost of that capital.

Growth

Growth is red. Revenue compounded at about 0.0% over three years, and earnings per share at -3.7% a year. Free cash flow per share grew 1.3% a year. Revenue rose in two of the three comparable years. Growth over five and ten years is not available. Next year's earnings estimate implies growth of 14.0%, which is the single positive growth signal. The contrast with the reverse discounted cash flow, which implies 15.6% a year, is the central tension in this analysis: the market is pricing in a reacceleration that the three-year record does not show.

Valuation

Valuation is red, as the verdict is overvalued with a margin of safety of -28.3%. Today's multiples are 46.9 times earnings, 19.6 times enterprise value to EBITDA, 33.7 times free cash flow, 4.8 times sales and 3.4 times book value. The ten-year medians are not available, so the premium or discount to history cannot be given. The discounted cash flow gives 89.74 USD per share, using 14.0% growth in the first stage, 2.5% terminal growth and a discount rate of 9.9%. Of the total value, 56.2% comes from the terminal value. The fair value band runs from 71.79 to 107.69 USD, and the fair value from historical multiples is not available. The current price of 125.09 USD sits above the top of the band. The dividend yield is 0.24% and the payout on free cash flow is 8.1%, so the dividend is not a material part of the return.

Risks

The main risk is that growth stays near zero. Flat revenue and falling earnings per share would make the 15.6% growth implied by the price hard to reach, and the valuation would have to fall toward the fair value band. Returns below the cost of capital would weaken the case for paying a premium multiple. Interest coverage of 4.6 times leaves less room if earnings fall. A decline in estimate revisions would remove the main positive signal. Values not available include the five-year free cash flow conversion, the five-year share count change, the ten-year multiple medians, the fair value from historical multiples, and the beta. The price history is too short to assess the historical multiples. This analysis does not include a debt maturity schedule or revenue by segment, so it cannot judge refinancing risk or the mix of growth across the two business segments.