Episode Details

Medline Inc. (MDLN) Q2 2026 — Net sales $7,685M UP 11.6% (organic UP 11.5%). Adjusted EBITDA $1,060M UP 13.4% - but $243M of it is an IEEPA tariff refund. Adjusted EPS $0.50 vs $0.33 consensus; GAAP EPS $0.07. FY26 EBITDA guide CUT to $3.3-3.4B. Stock closed $35.86, DOWN 14.7%. Medline beat by 52% and raised its sales guide - and closed down 14.7%. The $0.50 contains a $243M tariff refund excluded from guidance; strip it and it was ~$0.36 vs a $0.33 bar. And the FY EBITDA guide was CUT $200M, to below what Medline earned last year. THE CALL: SELL (4/5, ELEVEN PERCENT GROWTH THAT DOES NOT REACH THE EBITDA LINE) — base-case value ~$29.29 vs ~$35.86 today. KEY METRICS: - CALL: SELL 4/5, fair value ~$29 vs the $35.86 close (-19%), far below the Street's $51.14 (+43%). Base: 7% revenue growth, margins to 11.9%, 2029 adjusted EBITDA $4.54B on a 14.0x exit discounted at 9% = $29.29. Bear $17.55 (10.5% margin is structural, 6% growth, 11.5x). Bull $40.49 (margins back to FY25's 13.0%, 16.0x). Run backwards: $35.86 already needs a 16.5x 2029 exit against a 15.1x med-surg peer median; the Street's $51.14 needs 22.4x - above every peer. - THE BEAT WAS A TARIFF REFUND. After the Feb 2026 Supreme Court IEEPA ruling Medline booked $332M of refunds against cost of goods sold, less $89M of customer repayments against net sales - $243M net, sitting INSIDE adjusted EBITDA. Strip it: adjusted EBITDA $817M vs $935M, DOWN 12.6% not up 13.4%; margin 10.5% vs 13.6%, DOWN 310bps not up 20. Tax-effected at the company's own 25%, $243M is $182M, or $0.136 on 1,340M adjusted shares - so adjusted EPS was ~$0.36 vs a $0.33 bar. A 3-cent beat, not 17. - THE FY EBITDA GUIDE NOW SITS BELOW LAST YEAR. Management RAISED organic sales guidance to 9.0-10.0% (from 8.5-9.5%) and CUT adjusted EBITDA guidance to $3.3-3.4B (from $3.5-3.6B) - $200M off the midpoint, 5.6%. FY2025 off their own tables: TTM adjusted EBITDA $3,500M less 1H26's $1,836M = 2H25 $1,664M; plus 1H25's $1,803M = FY2025 $3,467M. The new $3,350M midpoint is 3.4% BELOW it, on revenue guided to grow 9-10%. Implied 2H26 is $1,757M, +5.6%. Cited: Middle East inflation, operational investment, quality remediation, retail softness. - EVERY SCREENER PRICES THIS COMPANY $16.7B TOO SMALL. Medline is an Up-C: 877M Class A plus 437M exchangeable Class B = 1,314M economic shares, and Medline's own adjusted EPS uses all of them (1,339,884,394). At $35.86 that is $47.1B of equity, not the $30.4B providers show. Add $10,073M net debt and the enterprise is $57.2B - 17.1x the FY26 guide, not the 14.9x screeners print. Add the $4,392M tax receivable agreement (from $3,542M in six months; Medline keeps just 10%) and it is $61.6B, 18.4x. Peers: Henry Schein 13.8x, Cencora 13.8x, McKesson 15.1x, Becton Dickinson 16.7x, Cardinal Health 20.1x. - SEGMENTS, THE FIRE AND THE LOCKUP. The entire $243M refund landed in Medline Brand: reported adjusted EBITDA $1,067M, +19.9%, a 30.1% margin - strip it and it is $824M vs $890M, DOWN 7.4%, a 22.7% margin vs 26.8%: 410bps of COMPRESSION reported as 330bps of expansion. Supply Chain Solutions grew sales 16.3% and profit 1.5%, margin 4.9% vs 5.6%. Corporate cost +35.3%. GAAP net income fell 58.3% on a $336M Tracy, California distribution-centre fire loss before insurance. And the 75-day lockup from the May 21 secondary (72.6M shares at $37.00, now under water) expired Aug 4, 2026 - one day before this print. What to watch: UP: a Q3 adjusted EBITDA margin back above 12% ex-tariff, a booked Tracy insurance recovery, or the FY guide back above $3.5B. BEAR: a Q3 missing the implied $1,757M second half, Supply Chain margin below 4.5%, or large Class B sales now the lockup has expired. We would buy $26-$30. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.