KEWAUNEE SCIENTIFIC CORP /DE/ (KEQU) stock intrinsic value fair value estimate & owner earnings analysis

Kewaunee Scientific, founded in 1906 and based in Statesville, North Carolina, designs and builds laboratory furniture, fume hoods and casework for pharmaceutical, biotech, university, school and hospital labs. It has two segments. Laboratory Products (LPG, $214.9M of fiscal 2026 sales) sells in the United States, mostly through dealers; two dealers and one national stocking distributor took about 34% of sales in fiscal 2026 (41% in fiscal 2025). International ($67.1M) is run from subsidiaries in India, Singapore and Saudi Arabia, and some of them have minority partners. In November 2024 Kewaunee bought Nu Aire, a Minnesota maker of biosafety cabinets, CO2 incubators and ultra-low freezers that brings in roughly $75M a year. That deal is the main reason sales rose from $203.8M in fiscal 2024 to $282.0M in fiscal 2026. How we measure earnings: we start from operating cash flow, strip out swings in working capital, and subtract stock pay and the capital spending needed to keep the business as it is. On that basis owner earnings were $1.56 a share in fiscal 2016, $2.36 in 2018, then turned negative from 2020 to 2022 (worst was -$1.63 in 2022, a year of operating losses on rising sales), recovered to $0.55 in 2023 and reached $3.73, $4.65 and $4.52 in fiscal 2024 to 2026. To value the business before its lenders we add back cash interest. That gives about $5.64 a share ($16.8M) in fiscal 2026. Fiscal 2024 earnings were boosted by a one-time tax benefit (release of a valuation allowance). Our cash-based measure excludes that benefit. The business is project-driven and cyclical, so we anchor on a full cycle rather than on the last three good years. Over fiscal 2016 to 2026 the median cash margin before interest was about 3.5% of sales. Nu Aire's catalog products should be steadier than project furniture, so we use about 3.9% of roughly $270M of combined sales, or $10.5M a year (about $3.52 a share). Recent signs point down, not up. Order backlog fell from $214.6M to $165.9M in the year to April 2026, and the International backlog nearly halved, from $90.7M to $47.1M. In the first quarter of fiscal 2027, sales fell 6.7% to $66.3M and net earnings fell from $3.1M to $1.7M. Owner earnings fell 2.5% in fiscal 2026, so our base case also starts with a 2.5% decline in year one. We credit no growth after that. Kewaunee has grown sales over the decade, but earnings have not grown steadily through a downturn, and growth that depends on new acquisitions is not counted. Nu Aire's acquired intangibles (about $1.5M a year of amortization) are added back as non-cash. We have not treated the brand and customer base as decaying, because ongoing selling costs, which are already deducted, maintain them. If that integration disappoints, it is part of the bear case. Debt: Kewaunee owes about $18.8M on PNC term loans (5.27% floating, about $5M a year of scheduled repayments, maturing 2029-2030) and has a $20M revolver that was undrawn at April 30, 2026. The covenants cap senior debt at 2.5 times EBITDA and require fixed-charge coverage of at least 1.2 times. The $23.0M of Nu Aire seller notes, which carried 8% interest, were paid off in December 2025. The 2022 sale-leaseback of the Statesville headquarters and plant is accounted for as a 20-year loan: about $158,000 a month of rent rising 2% a year until 2042, carried at $26.6M at a 4.75% rate. Valued at 6%, it is worth about $24.0M, and we count that as debt. Once the lease ends in 2042, Kewaunee will have to pay rent of about $2.8M a year to keep the facility, so we deduct that from every case after 2042. We also subtract about $4.0M for minority partners' share of the subsidiaries and add back $3.0M of cash beyond operating needs. Net debt comes to about $44.2M, or $14.82 a share on 2.983M diluted shares. Base case ($36.12 a share): cash flow before interest dips to $10.2M in year one and stays there. Kewaunee's 120-year history, its national dealer network and the steady replacement demand from labs are the evidence that this earning power lasts, so the case runs indefinitely, less the plant rent after 2042. The business is worth about $152.0M, it owes $44.2M, and that leaves $107.8M for shareholders. Bear case ($5.26 a share): a repeat of the fiscal 2019-2022 downturn, triggered by the backlog decline already reported and by possible loss of business with one of the three channel partners that make up a third of sales. Cash flow before interest falls from $7.0M to $2.5M, $0 and $1.5M over years one to four. That is below the roughly $2.5M interest bill for two years, so the company would lean on its undrawn revolver as it did in 2020-2022. Cash flow then recovers only to $6.0M, and the case ends 30 years out. The business is worth about $59.9M against $44.2M owed, leaving $15.7M. Covenant pressure during the trough is the main way this case could get worse. Bull case ($65.51 a share): the fiscal 2024-2026 performance holds with Nu Aire fully absorbed, and cash flow before interest stays near $15.5M a year, just below fiscal 2026's $16.8M. The business is worth about $239.6M against $44.2M owed, leaving $195.4M. Compared with our August 2026 estimate, the base value is higher mainly because we now discount every company's cash flows at the same 6% rate. Two things pull the other way. We now count the Statesville sale-leaseback as debt, and we anchor on a full-cycle earnings level rather than recent years. The bear value is lower and the bull value slightly lower. What would make this wrong: if the 2024-2026 margins reflect a lasting change in how Kewaunee prices its projects, the base case is too low. If the backlog decline turns into a 2020-2022-style loss cycle, or a major dealer leaves, the bear case is the better guide. We could not separate Nu Aire's standalone cash earnings from the filings. The pro forma figures show the acquisition adding little to net earnings once acquisition interest and amortization are counted.