Kewaunee Scientific Corporation (KEQU Quick QuoteKEQU - Free Report) has received a recommendation upgrade to “Outperform,” based on strong acquisition execution, sustained margin improvement, a record backlog that underpins revenue visibility and partial insulation from macroeconomic headwinds via healthcare exposure.

Acquisition Execution & Strategic Fit

The November 2024 acquisition of Nu Aire, Inc. has already proven transformative, delivering a 30.7% year-over-year increase in domestic segment sales to $179.4 million in fiscal 2025.

This acquisition significantly expanded KEQU’s product portfolio to include higher-margin offerings, such as biological safety cabinets, CO2 incubators and ultralow freezers, while establishing new distribution partners in previously underpenetrated markets. Integration progress has been ahead of expectations, creating early cross-selling opportunities and reinforcing KEQU’s positioning as a full-spectrum laboratory solutions provider.

Gross Margin Expansion & Profitability Gains

KEQU’s profitability profile has improved meaningfully, with the gross margin expanding 310 basis points to 28.6% in fiscal 2025 from 25.5% in fiscal 2024. This improvement reflects Nu Aire’s favorable product mix, operational efficiencies and disciplined cost control, even as it absorbed $6 million in one-time integration and purchase accounting expenses.

Adjusted EBITDA climbed 28.4% to $26.5 million, representing 10.9% of sales, as Kewaunee demonstrated the ability to translate top-line gains into higher operating leverage. The annuitization of the company’s pension obligation in fiscal 2024 has also eliminated a significant source of earnings volatility, providing a cleaner base for margin expansion, going forward.

Record Backlog & Revenue Visibility

A record $214.6-million backlog at the end of fiscal 2025, up 37.9% from the prior year, provides exceptional near-term visibility, with management expecting 93% of orders to convert into revenues in fiscal 2026. This backlog spans diverse end markets, including healthcare, pharmaceuticals and education, helping mitigate the cyclicality often seen in the broader construction and industrial sectors.

In particular, healthcare and life sciences, bolstered by Nu Aire’s capabilities, have exhibited greater resilience in the face of macroeconomic uncertainty, providing KEQU with a degree of macro immunity.

Risk Considerations

While Kewaunee’s enhanced growth trajectory, stronger profitability profile and backlog’s defensive qualities remain key positives, certain risks persist. Tariff-related cost pressures may affect input materials, such as steel, hardwoods and epoxy resin.

Management’s proactive inventory build offers a partial hedge, supporting short-term cost stability and ensuring uninterrupted delivery schedules in the event of escalating trade tensions. International operations remain a weak area, with fiscal 2025 sales falling 8.2% year over year due to project delays in India and profitability continues to trail expectations. Even so, robust domestic momentum and the strength of the backlog more than offset these headwinds.

Conclusion

Kewaunee’s transformation post-Nu Aire acquisition, combined with its strong domestic performance, expanding margins, record backlog and attractive valuation, supports an Outperform rating.

We believe that the company is well-positioned to deliver above-market returns over the next 12 months, with primary catalysts including backlog conversion, incremental synergies from the Nu Aire integration and potential bolt-on acquisitions. While tariff risk and international execution challenges merit monitoring, KEQU’s operational momentum and strategic positioning provide a favorable risk-reward profile at the current levels.