Could the Back Half of Fiscal 2026 Unlock Modine's Margin Growth?

Modine Manufacturing Company MOD continues to anticipate overall margin improvement at the company level in fiscal 2026, primarily driven by the growth in the Performance Technologies segment. The company expects margins to strengthen in the second half of the year.

By segment, Climate Solutions is projected to experience significant second-half volume growth fueled by the data center ramp. The company is currently incurring additional costs in preparation for this growth, which is expected to result in flat or slightly lower margins in Climate Solutions during the first half of the year. However, in the second half, data center volumes are anticipated to grow by more than 80%. The expansion will be supported by substantial data center inventory built up to meet several projects and delivery timelines in the second half of the year. 

The acquisition of L.B. White, completed in May 2025, is expected to deliver margins in the range of 15-20% in the fiscal second quarter, which is not far from that of Climate Solutions. The business is projected to reach or exceed the segment margin fairly quickly, contributing positively to performance in the second half of the year.

For Performance Technologies, Modine expects solid margin gains despite flat to declining volumes. It forecasts nearly 100 basis points of margin improvement in the second half, driven by ongoing cost reduction efforts, partial recovery of tariff and metals costs and incremental volume growth on a year-over-year basis. 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.

Margin Improvement Efforts by Modine’s Peer

Magna International Inc. MGA is implementing restructuring and cost containment measures to mitigate short- and mid-term macroeconomic pressures. The company also engaged in commercial negotiations with customers to recover costs and transitioned to industry benchmark pricing models. Meanwhile, MGA is enhancing core areas and adopting advanced technologies like automation, smart manufacturing, and global purchasing initiatives to boost long-term productivity.

BorgWarner Inc. BWA is streamlining its portfolio to sharpen focus and improve profitability. In the second quarter of 2025, the company exited its Charging business, a move expected to eliminate around $30 million in annual adjusted operating losses. BorgWarner is also consolidating its North American Battery Systems operations to better align with current market conditions. This restructuring is projected to deliver annual cost savings of about $20 million to BorgWarner by 2026.

MOD’s Price Performance, Valuation and Estimates  

Modine has outperformed the Zacks Automotive-Original Equipment industry year to date. Its shares have gained 29.1% compared with the industry’s growth of 12%. 

 
From a valuation perspective, MOD appears overvalued. Going by its price/sales ratio, the company is trading at a forward sales multiple of 2.57, higher than the industry’s 2.11. 

 
The Zacks Consensus Estimate for MOD’s fiscal 2026 and 2027 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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