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On Wednesday, BWS Financial adjusted its stance on Hawkins (NASDAQ:HWKN), shifting the stock's rating from Buy to Neutral. The new price target set for the company is $122.00, reflecting a cautious outlook after a period of significant growth through acquisitions. Hawkins has recently seen its water treatment business expand to the point where it is expected to surpass the industrial segment in sales for the first time in the company's history during this fiscal year.
The expansion of Hawkins' water treatment segment has been primarily driven by acquisitions, which has contributed to the stock's premium valuation compared to market averages and its own historical levels. This change in business focus coincides with an anticipated decline in sales within the industrial segment, as the company places a higher priority on gross margins rather than sales revenue.
The seasonality of the water treatment business is likely to lead to a decrease in Hawkins' overall gross margin in the second half of fiscal 2025. This projected decline, alongside the company's current valuation, suggests a limited margin for error as the September quarter results approach.
The decision to downgrade the stock rating comes after Hawkins has experienced a notable increase in its stock price, rising 269.7 percent since receiving a Buy rating from BWS Financial on August 7, 2023. The firm indicates a strategy of caution, opting to wait for a more opportune moment to consider re-entering the stock.
In other recent news, Hawkins Inc has reported key decisions from its annual shareholder meeting. The election of all eight board director nominees, including James A. Faulconbridge, Patrick H. Hawkins, Yi "Faith" Tang, Mary J. Schumacher, Daniel J. Stauber, James T. Thompson, Jeffrey L. Wright, and Jeffrey E. Spethmann, was confirmed by a significant majority.
Moreover, the appointment of Grant Thornton LLP as the company's independent registered public accounting firm for the fiscal year ending March 30, 2025, was ratified with a strong majority.
Shareholders also gave a nod to the executive compensation, commonly referred to as "say-on-pay," with a majority of votes in favor. These recent developments are indicative of the shareholders' confidence in the management and strategic direction of Hawkins Inc. The company's recent actions suggest a focus on governance and strategic planning in their operation.
InvestingPro Insights
Hawkins' recent performance and market position align closely with several InvestingPro Tips and metrics. The company's stock is trading near its 52-week high, with a remarkable 131.5% price total return over the past year. This aligns with BWS Financial's observation of the stock's significant rise since their previous Buy rating.
InvestingPro Tips highlight that Hawkins has maintained dividend payments for 32 consecutive years and has raised its dividend for 12 consecutive years. This demonstrates a strong commitment to shareholder returns, even as the company focuses on expanding its water treatment business through acquisitions.
However, the current valuation metrics suggest caution, echoing BWS Financial's concerns. The P/E ratio stands at 34.24, which InvestingPro Tips flag as "trading at a high earnings multiple" and "trading at a high P/E ratio relative to near-term earnings growth." This high valuation, combined with the company's PEG ratio of 1.29, supports the analyst's decision to downgrade the stock to Neutral.
It is worth noting that Hawkins' EBITDA growth of 20.37% over the last twelve months reflects the company's successful expansion strategy. However, with revenue growth at -1.68% over the same period, it underscores the shift towards prioritizing margins over sales volume in the industrial segment, as mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for Hawkins, providing a deeper understanding of the company's financial health and market position.
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