Zacks Initiates Coverage of Kewaunee Scientific With Neutral Recommendation

Core Viewpoint - Zacks Investment Research has initiated coverage of Kewaunee Scientific Corporation (KEQU) with a "Neutral" recommendation, emphasizing the company's strong order backlog and stable domestic performance while recognizing challenges in international operations and rising costs [1] Group 1: Company Performance - Kewaunee Scientific has a solid order backlog of $159.4 million as of July 31, 2024, indicating strong demand and visibility into future revenues [2] - Domestic revenues have increased slightly by 0.3% year over year, with net earnings rising to $2.9 million, reflecting resilient demand across core sectors [2] - Despite a 2.9% decline in sales during the first quarter of fiscal 2025, effective cost management has led to a gross profit increase to $12.5 million, showcasing the company's ability to control costs [3] Group 2: Market Opportunities - The global laboratory furniture market is projected to grow at a compound annual growth rate of 6.8%, reaching $3.6 billion by 2027, providing a favorable industry landscape for Kewaunee [4] - Kewaunee's extensive product portfolio, including steel and wood casework, fume hoods, and modular systems, aligns well with the rising demand for laboratory infrastructure across various sectors [4] Group 3: Challenges and Risks - The international segment has faced challenges, with a 10.7% drop in sales attributed to construction delays in India, alongside rising operating expenses and a 28.8% decline in pre-tax earnings [5] - The company faces significant competition in the laboratory furniture market, which could impact its ability to maintain market share and profitability [6] - Kewaunee's long-term debt and high financing costs raise concerns about its financial flexibility moving forward [5] Group 4: Valuation Insights - Kewaunee Scientific stock has outperformed its industry, sector, and the broader market over the past six months and the trailing 12 months, yet it is trading at a lower valuation relative to its peers, suggesting potential undervaluation [7] - The stock has historically shown a wide range of trading multiples, indicating volatility in its valuation [7]