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Modine (Mod) Trading Near All-Time High: Buy, Sell or Hold?
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Shares of Modine Manufacturing Company (MOD - Free Report) reached an all-time high of $117.04 on Jul 16, 2024. It is currently trading around just 2% off its record-high levels. Year to date, shares of MOD have surged more than 90%, handily outperforming the industry and close peers, including Dana Inc. (DAN - Free Report) and Gentherm Inc. (THRM - Free Report) .
YTD Price Comparison
Image Source: Zacks Investment Research
The impressive stock performance of MOD, which is a global leader in thermal management solutions, could be largely attributed to the acquisition of Scott Springfield, the 80/20 initiative and upbeat fiscal 2025 sales expectations. The company expects total sales to grow 5-10% due to a recovery in key heating, ventilating, air conditioning and refrigeration markets, and continued robust growth in data centers. In the Climate Solutions segment, data center sales are projected to surge 60-70%, driven by organic growth and recent acquisitions.
Modine shares are trading well above the 50-day moving average, indicating short-term bullishness. If the stock price is above a moving average, it can act as a robust support level, indicating that if the stock drops, it may struggle to fall below the moving average price level.
MOD Trading Above 50-Day Moving Average
Image Source: Zacks Investment Research
Given that the company is trading close to its all-time high, should you consider profit booking, or is there still time to scoop up its shares for more upside potential? Let us find out.
Factors Driving Optimism
The 80/20 Initiative: In 2021, Modine adopted the 80/20 principle, which states that 80% of outputs come from 20% of inputs. The company has fostered a high-performance culture by using data analytics to identify these critical inputs and prioritize the factors driving the best results. This approach focuses resources on products and markets with the highest sustainable growth opportunities and best return profiles, simplifying and improving processes. As a result, it has seen significant improvements in its profit margins since the beginning of this transformation.
Strategic Acquisitions: MOD is focused on growth opportunities in the Data Center Cooling and Indoor Air Quality businesses, and has strategically expanded its product offerings in these areas. In the second quarter of fiscal 2024, it acquired most of Napps’ assets to enhance its indoor air quality product portfolio. Additionally, in the fourth quarter of fiscal 2024, Modine completed the acquisition of Scott Springfield Mfg. Inc., a leading manufacturer of air handling units serving the data center cooling and indoor air quality markets in the United States and Canada. This has also bolstered the company’s portfolio and manufacturing footprint.
Investor-friendly Moves: Modine repurchased $13 million and $7 million of its common stock in fiscal 2024 and 2023, respectively. As of Mar 31, 2024, it had $32 million of authorized share repurchases remaining under its current repurchase program, which expires in November 2024. A company that engages in stock repurchases typically has a strong balance sheet with sufficient cash reserves, suggesting financial stability. MOD has a manageable long-term debt-to-capital ratio of 0.35.
Favorable Estimate Trend: The Zacks Consensus Estimate for MOD’s fiscal 2025 sales and EPS implies year-over-year growth of 6.88% and 14.15%, respectively. EPS estimates for fiscal 2025 and 2026 have moved up by a cent in the past 30 days.
Factors Raising Concerns
Modine’s 10 largest customers accounted for 40% of its fiscal 2024 sales. Losing business with any of these customers would significantly impact the company's top-line growth. Discouragingly, MOD expects higher cash payouts for incentive compensation in the current fiscal year. The pension contributions are planned at the higher end of $10-$15 million. Increased interest costs and cash payments due to restructuring in Europe add to the financial pressure, with these factors contributing at least $30-$40 million in additional costs. Also, variability in cash advances and inventory levels related to major data center builds could impact the overall cash flow.
Given the rally in MOD shares so far this year, the company is currently trading at a premium with forward 12-month earnings multiple of 29.07X compared with the industry’s 14.07X and its five-year median of 8.78X, indicating stretched valuation.
Image Source: Zacks Investment Research
Conclusion
Modine’s 80/20 initiative, upbeat outlook, acquisition strength and investor-friendly moves vouch for its strong prospects. Those who already own this Zacks Rank #3 (Hold) stock should retain it for the long run. However, given the company’s premium valuation and the near-term headwinds, it may not be the right time for potential investors to buy shares right now.
Image: Bigstock
Modine (Mod) Trading Near All-Time High: Buy, Sell or Hold?
Shares of Modine Manufacturing Company (MOD - Free Report) reached an all-time high of $117.04 on Jul 16, 2024. It is currently trading around just 2% off its record-high levels. Year to date, shares of MOD have surged more than 90%, handily outperforming the industry and close peers, including Dana Inc. (DAN - Free Report) and Gentherm Inc. (THRM - Free Report) .
YTD Price Comparison
The impressive stock performance of MOD, which is a global leader in thermal management solutions, could be largely attributed to the acquisition of Scott Springfield, the 80/20 initiative and upbeat fiscal 2025 sales expectations. The company expects total sales to grow 5-10% due to a recovery in key heating, ventilating, air conditioning and refrigeration markets, and continued robust growth in data centers. In the Climate Solutions segment, data center sales are projected to surge 60-70%, driven by organic growth and recent acquisitions.
Modine shares are trading well above the 50-day moving average, indicating short-term bullishness. If the stock price is above a moving average, it can act as a robust support level, indicating that if the stock drops, it may struggle to fall below the moving average price level.
MOD Trading Above 50-Day Moving Average
Image Source: Zacks Investment Research
Given that the company is trading close to its all-time high, should you consider profit booking, or is there still time to scoop up its shares for more upside potential? Let us find out.
Factors Driving Optimism
The 80/20 Initiative: In 2021, Modine adopted the 80/20 principle, which states that 80% of outputs come from 20% of inputs. The company has fostered a high-performance culture by using data analytics to identify these critical inputs and prioritize the factors driving the best results. This approach focuses resources on products and markets with the highest sustainable growth opportunities and best return profiles, simplifying and improving processes. As a result, it has seen significant improvements in its profit margins since the beginning of this transformation.
Strategic Acquisitions: MOD is focused on growth opportunities in the Data Center Cooling and Indoor Air Quality businesses, and has strategically expanded its product offerings in these areas. In the second quarter of fiscal 2024, it acquired most of Napps’ assets to enhance its indoor air quality product portfolio. Additionally, in the fourth quarter of fiscal 2024, Modine completed the acquisition of Scott Springfield Mfg. Inc., a leading manufacturer of air handling units serving the data center cooling and indoor air quality markets in the United States and Canada. This has also bolstered the company’s portfolio and manufacturing footprint.
Investor-friendly Moves: Modine repurchased $13 million and $7 million of its common stock in fiscal 2024 and 2023, respectively. As of Mar 31, 2024, it had $32 million of authorized share repurchases remaining under its current repurchase program, which expires in November 2024. A company that engages in stock repurchases typically has a strong balance sheet with sufficient cash reserves, suggesting financial stability. MOD has a manageable long-term debt-to-capital ratio of 0.35.
Favorable Estimate Trend: The Zacks Consensus Estimate for MOD’s fiscal 2025 sales and EPS implies year-over-year growth of 6.88% and 14.15%, respectively. EPS estimates for fiscal 2025 and 2026 have moved up by a cent in the past 30 days.
Factors Raising Concerns
Modine’s 10 largest customers accounted for 40% of its fiscal 2024 sales. Losing business with any of these customers would significantly impact the company's top-line growth. Discouragingly, MOD expects higher cash payouts for incentive compensation in the current fiscal year. The pension contributions are planned at the higher end of $10-$15 million. Increased interest costs and cash payments due to restructuring in Europe add to the financial pressure, with these factors contributing at least $30-$40 million in additional costs. Also, variability in cash advances and inventory levels related to major data center builds could impact the overall cash flow.
Given the rally in MOD shares so far this year, the company is currently trading at a premium with forward 12-month earnings multiple of 29.07X compared with the industry’s 14.07X and its five-year median of 8.78X, indicating stretched valuation.
Image Source: Zacks Investment Research
Conclusion
Modine’s 80/20 initiative, upbeat outlook, acquisition strength and investor-friendly moves vouch for its strong prospects. Those who already own this Zacks Rank #3 (Hold) stock should retain it for the long run. However, given the company’s premium valuation and the near-term headwinds, it may not be the right time for potential investors to buy shares right now.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.