Founder, BWS Financial Inc

Hamed Khorsand

Founder

Independent Stock Specific Research

BWS Financial Inc

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BWS utilizes a self formed proprietary approach in discovering stocks by putting great emphasis on deep research. BWS does generate short recommendations following a similar criteria.

Equity Bottom-Up

<ul>
<li>HWKN used the backdrop of the holidays to add to its water treatment business, but the catalyst for fiscal third quarter (December) results could be the health and nutrition segment</li>
<li>The health and nutrition segment experienced an increase in sales in FYQ2 due to the late summer wave of COVID-19. Current COVID-19 wave could result in FYQ3 sales also increasing</li>
<li>HWKN was already benefiting from growth in the water treatment business and higher chemical prices</li>
</ul>


HWKN used the backdrop of the holidays to add to its water treatment business, but the catalyst for fiscal third quarter (December) results could be the health and nutrition segment
The health and nutrition segment experienced an increase in sales in FYQ2 due to the late summer wave of COVID-19. Current COVID-19 wave could result in FYQ3 sales also increasing
HWKN was already benefiting from growth in the water treatment business and higher chemical prices


<ul type="disc"><li>Increase in demand and volumes supported Hawkins (HWKN) report fiscal second quarter (September) sales ahead of our forecasts. We had increased our numbers ahead of the results citing continued price appreciation across the product spectrum.</li></ul> <ul type="disc"><li>The rise in chemical costs did result in HWKN taking an accounting charge of $2.5 million for last in first out (“LIFO”). The charge resulted in gross margin declining in the quarter even though free cash flow continues to pace ahead of our expectations.</li></ul> <ul type="disc"><li>HWKN is benefiting from continued demand for specialty chemicals during a time when supply is tight. The volume and price increase should result in HWKN reporting higher earnings in subsequent quarters.</li></ul> <ul type="disc"><li>The industrial segment experienced sales growth of approximately 36 percent compared to the year ago period. HWKN has used its storage capacity to capitalize on greater demand in the market.</li></ul>

Increase in demand and volumes supported Hawkins (HWKN) report fiscal second quarter (September) sales ahead of our forecasts. We had increased our numbers ahead of the results citing continued price appreciation across the product spectrum. The rise in chemical costs did result in HWKN taking an accounting charge of $2.5 million for last in first out (“LIFO”). The charge resulted in gross margin declining in the quarter even though free cash flow continues to pace ahead of our expectations. HWKN is benefiting from continued demand for specialty chemicals during a time when supply is tight. The volume and price increase should result in HWKN reporting higher earnings in subsequent quarters. The industrial segment experienced sales growth of approximately 36 percent compared to the year ago period. HWKN has used its storage capacity to capitalize on greater demand in the market.

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Financial Select Sector SPDR F / Technical Analysis

We continue to see a steady flow of risk-on signals that have us moving toward an outright bullish outlook for the broad US equity market. Below we discuss several bullish developments that leads us to believe we are close to exiting the "mixed market environment" that we have referenced since late March.Charts highlighted: XLF, KBE, Copper, US Dollar, IWD, XLY, Bitcoin, S&amp;P 500, APO, LPLA, ARCC, JHG, KKR, ALLY, CACC, OMF, CIT, WD, GATX, LC, CODI, WRLD, ATLC, BCPC, TROX, ASPN, ASIX, LXU, HWKN, MOS, CF, ICL, SQM, UAN, IPI

We continue to see a steady flow of risk-on signals that have us moving toward an outright bullish outlook for the broad US equity market. Below we discuss several bullish developments that leads us to believe we are close to exiting the "mixed market environment" that we have referenced since late March.Charts highlighted: XLF, KBE, Copper, US Dollar, IWD, XLY, Bitcoin, S&amp;P 500, APO, LPLA, ARCC, JHG, KKR, ALLY, CACC, OMF, CIT, WD, GATX, LC, CODI, WRLD, ATLC, BCPC, TROX, ASPN, ASIX, LXU, HWKN, MOS, CF, ICL, SQM, UAN, IPI

Upgrading Financials To Overweight; Downgrading Communications To Market Weight

<ul type="disc"><li>The shortages that facilitated Hawkins (HWKN) reporting better than expected June quarter results have persisted through the September quarter. In the June quarter there were a handful of chemicals with nationwide shortages. Caustic soda and sodium hypochlorite (bleach) are two of the main chemicals to catch headlines, but the industry continues to experience shortages with many other chemicals.</li></ul> <ul type="disc"><li>The increase in chlorine demand related to COVID-19 has been replaced with demand for water treatment. The reopening of public and private pools has increased demand for the chemical without a corresponding increase in supply.</li></ul> <ul type="disc"><li>HWKN has been inventing in its water treatment segment through acquisitions. The business generates gross margin above the Company average and benefits from the growing need for water treatment solutions.</li></ul> <ul type="disc"><li>The September quarter has all the ingredients for beating our expectations.</li></ul>

The shortages that facilitated Hawkins (HWKN) reporting better than expected June quarter results have persisted through the September quarter. In the June quarter there were a handful of chemicals with nationwide shortages. Caustic soda and sodium hypochlorite (bleach) are two of the main chemicals to catch headlines, but the industry continues to experience shortages with many other chemicals. The increase in chlorine demand related to COVID-19 has been replaced with demand for water treatment. The reopening of public and private pools has increased demand for the chemical without a corresponding increase in supply. HWKN has been inventing in its water treatment segment through acquisitions. The business generates gross margin above the Company average and benefits from the growing need for water treatment solutions. The September quarter has all the ingredients for beating our expectations.

<ul type="disc"><li>
Hawkins (HWKN) has leveraged its storage capabilities to meet increased demand for specialty chemicals at a time when demand has increased. HWKN reported fiscal first quarter (June) results surpassing our expectations on the heels of higher pricing and volumes for multiple products.</li></ul> <ul type="disc"><li>Ahead of the results we had been expecting some normalization in HWKN’s business due to loosened COVID-19 restrictions. Even though there was evidence of lower bleach demand, there was an increase across a multitude of the products HWKN sells, including those where there has been material increase in selling prices.</li></ul> <ul type="disc"><li>HWKN reported revenue of $181.2 million compared to our estimate of $178.8 million. The increase in revenue was the result of higher industrial and water treatment revenue while health &amp; nutrition revenue declined sequentially faster than we had expected.</li></ul> <ul type="disc"><li>We are making changes to our earnings model to reflect the improvement in the underlying demand in HWKN’s businesses. This includes using a higher gross margin than we had originally modeled at the start of the fiscal year.</li></ul>


Hawkins (HWKN) has leveraged its storage capabilities to meet increased demand for specialty chemicals at a time when demand has increased. HWKN reported fiscal first quarter (June) results surpassing our expectations on the heels of higher pricing and volumes for multiple products. Ahead of the results we had been expecting some normalization in HWKN’s business due to loosened COVID-19 restrictions. Even though there was evidence of lower bleach demand, there was an increase across a multitude of the products HWKN sells, including those where there has been material increase in selling prices. HWKN reported revenue of $181.2 million compared to our estimate of $178.8 million. The increase in revenue was the result of higher industrial and water treatment revenue while health &amp; nutrition revenue declined sequentially faster than we had expected. We are making changes to our earnings model to reflect the improvement in the underlying demand in HWKN’s businesses. This includes using a higher gross margin than we had originally modeled at the start of the fiscal year.

United States

Hawkins, Inc. formulates, manufactures, blends, distributes, and sells reagent grade laboratory chemicals and industrial chemicals.  The Company also provides water treatment equipment and chemicals to commercial and industrial entities. Hawkins services customers located in the Midwest United States.

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