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Kewaunee Scientific Corporation (KEQU) Deep Research Report: Growth With Jittery Margins – Is the Risk/Reward Finally Attractive?

DeepValue Research Team|
KEQU

Kewaunee Scientific (NASDAQ: KEQU) is in that tricky spot where the income statement and the stock chart are saying very different things.

On one hand, revenue is booming. Fiscal 2025 net sales were up 18% to $240.5 million with record backlog, and early FY26 has posted around 47% year‑over‑year sales growth as Nu Aire kicks in and domestic demand remains strong, according to FY25 and Q1–Q2 FY26 disclosures. On the other hand, net income is under pressure and the share price is down roughly a third from late‑summer highs as investors question the quality and durability of those earnings.

From our perspective at DeepValue, that disconnect is exactly where mispriced opportunities tend to emerge—especially in smaller, under‑covered industrial names.

Right now, Kewaunee trades around $39.10 per share, implying a market cap of about $112 million and valuation multiples of roughly 9.5x trailing EPS and 5.1x EV/EBITDA, while net debt/EBITDA sits near 1.6x based on recent financial data. Underneath the choppy quarterly margins is a near‑record backlog of $192.9 million and a newly refinanced balance sheet that should lower interest expense going forward, per the FY26 Q2 earnings release (2025), p.1–3 and the debt refinancing announcement (Dec 2025).

For investors willing to live with volatility and do the work on the underlying drivers, we think Kewaunee offers a compelling, if bumpy, potential buy over the next 12–24 months.

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Let’s break down how we’re thinking about Kewaunee today: where the growth is coming from, what could go wrong, and why we still lean “potential buy” despite the noise.

What does Kewaunee Scientific actually do?

Kewaunee is not a sexy AI or software story. It’s a real‑world capital goods business that designs, manufactures, and installs laboratory furniture and critical containment equipment.

According to the company’s own description (About Us, 2025), the product set includes:

  • Steel and wood lab casework
  • Fume hoods
  • Modular and adaptable systems
  • Movable workstations
  • Epoxy work surfaces and sinks

These products serve a range of end markets:

  • Pharmaceutical and biotech R&D
  • Hospitals and healthcare facilities
  • Industrial and chemical labs
  • Universities and government labs
  • Commercial research and manufacturing environments

The business model historically revolved around large, project‑based lab construction and renovation, with revenue tied closely to broader construction cycles. That meant lumpy order patterns, long lead times, and significant exposure to project delays and fixed‑price contract risk, as detailed in the 2025 10-K (2025), Revenue and Risk Factors.

The November 2024 acquisition of Nu Aire, a well‑known manufacturer of biological safety cabinets, CO₂ incubators, and related airflow products, significantly changed that footprint. As the Nu Aire acquisition release (Nov 2024) highlights, Kewaunee now offers:

  • Traditional lab furniture and fume hoods
  • Nu Aire’s higher‑margin biosafety cabinets and critical lab equipment
  • Integrated design and installation for turnkey lab environments

Strategically, that makes Kewaunee more of a “full lab solutions” platform rather than a pure furniture vendor. It also tilts the mix toward less construction‑dependent, more equipment‑driven revenue, which should be structurally higher margin if executed well.

Why is growth so strong while earnings look weak?

The heart of the current debate is simple: sales are exploding, but earnings are not.

According to the FY25 results and backlog disclosure (Jun 2025), Kewaunee delivered:

  • FY25 net sales of $240.5 million, up 18%
  • Record backlog of $214.6 million at year‑end
  • Gross margin expansion from 25.5% in FY24 to 28.6% in FY25

Yet GAAP net earnings actually fell 39% in FY25, and Q2 FY26 showed:

  • Net sales up 46.8% year‑over‑year to $70.1 million
  • Net earnings down to $2.45 million from $3.0 million a year earlier
  • Operating expenses up sharply to $15.6 million from $9.5 million
  • Interest expense more than doubling to $1.06 million from $0.44 million, per the 10-Q (2025), p.1–4 and the Q2 FY26 earnings 8-K (Dec 2025).

So what’s going on?

From our read of the filings and press releases, three main factors are driving the “growth but weaker earnings” picture:

1. Higher structural overhead. Management has been explicit about investing in corporate systems and SOX 404(b) infrastructure to support a larger, more complex platform. The Q1 FY26 release (Sep 2025) notes that these investments are intentional and will structurally lift G&A.

2. Nu Aire integration costs and added interest. The roughly $55 million Nu Aire deal was funded with term debt and a seller note, increasing leverage and interest expense. Management estimates around $6 million of acquisition and integration costs are rolling through results, per FY25 commentary (Oct 2025).

3. Project timing and utilization volatility. In a fixed‑price, project‑driven model, manufacturing throughput and site scheduling matter enormously. Kewaunee has repeatedly called out customer site delays—especially in India—that push revenue out and depress plant utilization, as seen in the Q3 FY25 report (Mar 2025).

In our view, the key question isn’t whether these headwinds exist—they clearly do—but whether they are:

  • Largely transitional, tied to integration and upfront corporate build‑out, or
  • Structural, signaling a permanently lower earnings power than the headline growth implies

Management has guided that FY26 unadjusted EBITDA should exceed FY25, despite the volatility. If Q3 and Q4 FY26 confirm that guidance, we think the market will start to re‑frame the story as “volatile but improving” rather than “broken margins.”

Is KEQU stock a buy in 2026?

We frame Kewaunee today as a “potential buy” with a 6–12 month re‑assessment window, not a set‑and‑forget compounder.

Here’s how we see the scenario distribution based on our internal work:

Base case (55% probability):

  • Backlog stabilizes around $180–200 million
  • Revenue grows high‑single to low‑teens annually
  • EBITDA modestly exceeds FY25
  • Fair value around $50 per share, implying ~28% upside

Bear case (25% probability):

  • Backlog trends down toward ~$160 million
  • Volume growth slows to mid‑single digits
  • EBITDA margins compress below FY24 levels
  • Fair value around $30, or roughly 23% downside from $39.10

Bull case (20% probability):

  • Backlog holds at or above $200 million
  • Revenue compounds in the mid‑teens
  • EBITDA margins expand 150–200 bps versus FY25 as Nu Aire mix improves
  • Fair value around $60, or roughly 53% upside

At current prices and leverage levels—net debt/EBITDA around 1.6x, current ratio 2.5x as per the 10-Q (2025), Liquidity section—that payoff skew looks attractive to us, provided you accept:

  • Choppy quarterly earnings
  • Material dependence on backlog and dealer behavior
  • Small‑cap liquidity risk

In other words, we see asymmetric upside if the company can simply hold backlog in the high‑$100 million range, show that EBITDA grows year‑over‑year, and benefit from lower interest post‑refinancing—without needing a heroic margin story.

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How strong is the margin of safety?

At $39.10, we’d argue Kewaunee’s margin of safety is primarily balance‑sheet and backlog‑driven, not free‑cash‑flow‑driven.

From the latest filings and financial data:

  • Market cap: ~ $112 million
  • EV/EBITDA: ~5.1x
  • P/E: ~9.5x trailing EPS of $3.98
  • Net debt/EBITDA: ~1.55–1.6x
  • Economic term debt (ex‑lease): ~ $32 million
  • Debt‑to‑equity (ex‑lease): ~0.5x
  • Current ratio: >2x; working capital around $67.8 million with $13.7 million in cash, per the 10-Q (2025), Balance Sheet

On the revenue visibility side:

  • Backlog sits at $192.9 million (Oct 31, 2025), versus $214.6 million peak at FY25 year‑end and $184.4 million a year earlier
  • Management has indicated that at least 93% of FY25 year‑end backlog was expected to ship in FY26, according to the 2025 10-K (2025), p.10–12 and BeyondSPX coverage of FY25.

This combination—moderate leverage plus a near‑record backlog—gives us reasonable confidence that a near‑term earnings collapse is unlikely, barring major cancellations or execution failures.

That said, there are clear boundaries where the margin of safety erodes quickly:

  • If backlog falls below ~$160 million for two consecutive quarters, without offsetting new awards, the high‑teens growth narrative breaks.
  • If net debt/EBITDA drifts sustainably above ~3x, interest coverage compresses and covenant flexibility tightens, as flagged in the risk discussion in the 10-K (2025), p.18–21.
  • If Nu Aire fails to deliver its expected mix uplift—e.g., via quality or regulatory issues that hit share or pricing—the low P/E multiple may prove justified rather than cheap.

Our takeaway: the downside looks bounded but not trivial. Investors should size positions assuming earnings and working capital volatility are features, not bugs.

Will Kewaunee deliver long-term growth?

We think the long‑term growth story is credible, with meaningful tailwinds at the industry and company levels.

Industry growth backdrop

Independent research on the lab infrastructure space is constructive:

These are not hypergrowth markets, but they are solid, regulation‑supported, and relatively non‑discretionary in nature.

Kewaunee’s share gains

Against this backdrop, Kewaunee has been outgrowing the industry by a wide margin:

That kind of outperformance strongly suggests share gains, helped by:

  • Nu Aire cross‑selling through Kewaunee’s dealer and contractor relationships
  • Integrated lab solutions pitches (furniture + equipment + install)
  • Growing presence in higher‑growth life sciences and healthcare projects

Longer term (2–5 years), our thesis assumes:

If that plays out, the current 9–10x earnings multiple looks too low for a growing, moderately leveraged industrial with differentiated positioning.

Use DeepValue’s parallel research engine to benchmark Kewaunee’s growth, leverage, and margins against peers, so you can decide if its long-term trajectory fits your portfolio’s risk profile.

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Key risks and what to monitor in 2026

We never want to fall in love with a story stock, and Kewaunee absolutely isn’t risk‑free. Our internal thesis breakers focus on three broad buckets.

1. Backlog compression and demand stall

Backlog is the backbone of the growth thesis. The company closed FY25 with $214.6 million of backlog and reported $192.9 million at October 31, 2025, as noted in the 10-Q (2025), p.3–4.

Our red line:

  • If backlog falls below ~$160 million for two consecutive quarters without clear, large awards in the pipeline, we’d downgrade the growth outlook materially.

In that scenario, you’d have:

  • Weaker visibility into future revenue
  • Lower plant utilization and more intense price competition
  • Rising risk that the current leverage and fixed cost base are mis‑sized for the new reality

2. Profitability failure post-integration

Management’s guidance is that FY26 unadjusted EBITDA should exceed FY25, even after absorbing acquisition and integration noise and higher infrastructure costs.

We view this as a critical test:

  • If Q3–Q4 FY26 results show EBITDA below FY25 levels despite Nu Aire being fully onboard and seller notes refinanced away, it would strongly suggest that structural cost pressure has overwhelmed the mix benefit.

The Q1 FY26 report (Sep 2025) and FY25 results (Jun 2025) both acknowledge uneven quarterly patterns, so a single weak quarter isn’t thesis‑breaking. But by the time we get full‑year FY26 numbers, we’ll want:

  • Clear year‑over‑year EBITDA growth
  • Stable or improving gross margins vs FY25’s 28.6%
  • Evidence that interest expense is stepping down after the refinancing

3. Nu Aire franchise or execution risk

Nu Aire is now the higher‑margin growth engine. Any significant issues here would be serious:

  • Regulatory, certification, or quality problems leading to recalls or lost approvals
  • Competitive share losses to Thermo Fisher, Labconco, or Baker, as profiled in Grand View Research’s BSC market overview (Nov 2024)
  • Gross margin erosion in Nu Aire despite stable volume, implying pricing or cost‑control problems

We’ll be watching segment commentary, gross margin mix, and any indications from market research providers like Fact.MR’s biological safety cabinets report (Jan 2026) for early warning signs.

Dealer concentration and contract structure

On top of these thesis breakers, there are two structural risk levers:

  • Around 41% of FY25 sales went through two domestic dealers and one national stocking distributor, as disclosed in the 10-K (2025), Customer Concentration section.
  • Most furniture projects are quoted on a firm, fixed‑price basis, making Kewaunee bear the risk of material and labor cost inflation, per the 10-K (2025), p.14–15.

This combination means:

  • If a key dealer shifts business to a competitor, both revenue and pricing could suffer suddenly.
  • Sharp input cost increases (steel, lumber, freight) can squeeze margins on already‑booked backlog, especially if construction delays extend project timelines.

We don’t see current evidence of dealer defection, but we treat this as a non‑trivial tail risk.

Management quality and capital allocation

For a small‑cap industrial with rising leverage, management quality matters a lot more than in mega‑caps.

Our read on Kewaunee’s stewardship is cautiously positive:

  • The team has turned the business from low‑margin / loss‑making (e.g., FY22 net loss) to FY25 adjusted EPS of $5.37 vs $4.19, with gross margin expanding 310 bps to 28.6%, even while absorbing Nu Aire integration costs, as summarized in Panabee’s FY25 coverage (Oct 2025).
  • Management has consistently guided to “uneven quarterly performance” rather than over‑promising smooth earnings, as reiterated in the Q1 FY26 release (Sep 2025).
  • The team elected to fully repay the $23 million Nu Aire seller notes ahead of schedule and refinance with PNC, lowering the effective interest rate and removing a 2027 maturity wall, per PRNewswire’s refinancing announcement (Dec 2025).

On the other hand, the capital allocation playbook has undeniably increased operating leverage and execution risk:

  • A large acquisition relative to enterprise value, funded mainly with debt
  • A sale‑leaseback of headquarters (2021) and pension annuitization (FY24) that simplified the balance sheet but raised fixed cash commitments, as outlined in Q3 FY25 commentary (Mar 2025).

So far, we’d characterize capital allocation as:

  • Bold and generally value‑seeking, with real strategic logic
  • But also raising the bar for execution, especially around plant utilization and overhead discipline

Investors need to be comfortable underwriting both the upside from that boldness and the higher downside if things go wrong.

If you want to stress‑test management quality across a watchlist of similar leveraged small‑cap stories, DeepValue can pull and cross‑compare 10‑Ks, DEF 14As, and earnings call disclosures in minutes instead of days.

How we’d trade Kewaunee from here

Putting it all together, our stance as of January 2026:

  • Rating: Potential Buy
  • Conviction: 4.0 / 5
  • Attractive entry zone: Around $36 per share or below, giving more cushion vs our $50 base‑case value
  • Trim zone: Above $55, where the risk/reward becomes more balanced and the market is closer to pricing in successful integration and sustained margin improvement
  • Re‑assessment window: 6–12 months, anchored on FY26 Q3–Q4 results and backlog / leverage trends

We’d be inclined to:

  • Start with a modest position, sized for small‑cap volatility
  • Add into weakness only if:
  • Backlog holds ≥$180 million
  • Net debt/EBITDA trends toward or below current levels
  • Management reaffirms or delivers on FY26 EBITDA > FY25
  • Reduce exposure if:
  • Backlog drops below ~$170 million, or
  • Net debt/EBITDA ticks above 3x for two consecutive quarters

Conceptually, we view Kewaunee as:

  • A fundamentally attractive niche industrial with real competitive advantages in integrated lab solutions and biosafety equipment
  • Currently trading at an undemanding multiple because of noisy execution and leveraged balance sheet optics
  • Offering asymmetric upside if earnings quality normalizes even modestly and the market re‑rates it toward 12–14x earnings and 7–8x EV/EBITDA

This is not the right stock for investors who require smooth quarterly EPS progression or pristine balance sheets. But for value‑oriented investors comfortable underwriting cyclical risk within defined guardrails, KEQU deserves a serious look in 2026.

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Sources

Frequently Asked Questions

Is Kewaunee Scientific stock undervalued at current prices?

At around $39 per share, Kewaunee trades at roughly 9.5x trailing EPS and about 5.1x EV/EBITDA, which is low for a company growing revenue in the low- to mid-teens. Our base case suggests fair value closer to $50 if backlog holds and EBITDA modestly improves, implying a valuation discount that looks more like an ex-growth cyclical than a company with a near-record order book.

How important is the Nu Aire acquisition to Kewaunee’s long-term thesis?

Nu Aire is central to the story because it adds higher-margin biosafety cabinets and critical lab equipment to Kewaunee’s traditional furniture platform. If Nu Aire continues to grow faster than the core business and maintains its margin profile, it can offset higher corporate overhead and interest costs and support sustained mid-teens revenue growth; if it stumbles, the thesis weakens materially.

What are the key risks investors should watch with Kewaunee Scientific?

The main risks include backlog erosion, dealer concentration, and the possibility that integration and higher fixed costs compress margins more than expected. If backlog drifts toward $160 million, net debt/EBITDA climbs above 3x, or Nu Aire fails to deliver the anticipated mix-driven uplift, the current “cheap growth” narrative could quickly shift to a value trap.

Disclaimer: This report is for informational purposes only and is not investment advice. Analysis is powered by our proprietary AI system processing SEC filings and industry data. Investing involves risk, including loss of principal. Always consult a licensed financial advisor and perform your own due diligence.