Will Momentum in Climate Solutions Business Support Modine's Growth?

Modine Manufacturing Company’s MOD Climate Solutions segment provides data center cooling systems, heat transfer equipment and HVAC&R products to customers across North America, EMEA and Asia. The segment has continued its strong growth trajectory in the first quarter of fiscal 2026. It reported an 11% year-over-year increase in revenues and a 10% improvement in adjusted EBITDA during the quarter. This performance was supported by the initial contributions from two recent acquisitions, AbsolutAire and L.B. White. Both companies strengthen Modine’s HVAC Technologies Group by adding complementary heating solutions, expanding the product portfolio and opening new markets and distribution channels.

In July, Modine further advanced its strategic growth plan by acquiring Climate by Design International (CDI), a specialist in desiccant dehumidification and critical process air handlers. CDI’s offerings align closely with Modine’s earlier acquisitions of Jetson modular chillers and Scott Springfield custom commercial air handlers. Management expects to enhance CDI’s profitability using the 80/20 operational model. These acquisitions align with Modine’s broader strategy to expand into next-generation heating, indoor air quality and data center cooling technologies.

Based on stronger demand and the benefits of recent acquisitions, Modine has raised its fiscal 2026 outlook. Total company sales are now projected to grow between 10% and 15% compared with the earlier expectation of 2-10%. The Climate Solutions segment is expected to lead this momentum with sales growth of 25-35%, driven largely by expected growth of more than 45% this year in data center cooling solutions’ sales. MOD carries a Zacks Rank #2 (Buy) at present. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Growth Engines of Peers

BorgWarner Inc.’s BWA turbocharger business remains a key growth driver of the firm, supported by several new contract wins. BorgWarner secured two awards from a major global OEM for gasoline and hybrid engines in Europe and North America, with production starting in 2027 and 2028. BWA also won a contract with a leading East Asian OEM for hybrid SUV applications, set to begin in 2027. Another award was secured for a hybrid sports car platform with a global OEM, with production starting in 2028.

Gentex Corporation’s GNTX Full Display Mirror (FDM) is its key growth engine and is likely to boost top-line growth. In 2024, GNTX shipped 2.96 million FDM units, rising 21% year over year. In the second quarter, FDM was introduced on several models, increasing the total number of launched nameplates to 139. GNTX projects a 150,000-300,000 increase in FDM unit shipments in 2025 compared to 2024.

MOD’s Price Performance, Valuation and Estimates  

Modine has outperformed the Zacks Automotive-Original Equipment industry year to date. Its shares have gained 19.6% compared with the industry’s growth of 12.5%. 

 
From a valuation perspective, MOD appears overvalued. Going by its price/sales ratio, the company is trading at a forward sales multiple of 2.39, higher than the industry’s 2.11. 

 
The Zacks Consensus Estimate for MOD’s 2025 and 2026 EPS has moved up 11 cents and 46 cents, respectively, in the past 60 days. 

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This article originally published on Zacks Investment Research (zacks.com).

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