Knowles Q2 2025 Preview: The Play Is On Margin Recovery And Momentum

Knowles (KN) is highlighted as an undervalued industrial stock, offering 20-35% potential upside at a 26% EV/EBITDA discount to peers. The Q2 2025 outlook anticipates margin recovery in its MedTech & Specialty Audio segment as product mix normalizes, while the Precision Devices segment is poised for growth driven by strong bookings and new high-margin products in H2 FY25. Execution in the second half of the fiscal year is cited as the primary risk to this positive outlook.

Analysis

Knowles Corporation (KN) is positioned as an undervalued industrial asset with a potential upside of 20-35%, currently trading at a 26% EV/EBITDA discount relative to its peers. The investment thesis hinges on two primary drivers. First, the MedTech & Specialty Audio (MSA) segment's margins are believed to have bottomed out, with recovery anticipated in Q2 2025, fueled by a normalizing product mix and scaling Syntiant volumes. This margin improvement is flagged as a key near-term catalyst. Second, the Precision Devices (PD) segment is set for growth, supported by strong bookings, a healthy backlog, and the introduction of new high-margin specialty film products expected to boost throughput in the second half of fiscal year 2025. The primary risk to this outlook is the company's execution capability in H2 FY25.

Key Decisions for Investors

• Given the significant valuation discount and potential upside, investors may find an attractive entry point, viewing Knowles as a stable industrial play with clear recovery and growth catalysts.
• Monitor the upcoming Q2 2025 earnings release closely for evidence of the anticipated margin recovery in the MedTech & Specialty Audio segment, as this is the central short-term catalyst for the stock.
• Investors should track management's execution on new product launches and throughput within the Precision Devices segment in the second half of the fiscal year, as this is the key risk factor that could impact the long-term growth narrative.