MOD - Modine Manufacturing Stock: A Downgrade Looks Logical

2024-04-16 04:23:04 ET

Summary

• Modine Manufacturing's stock has more than doubled in less than six months. Now, its upside potential looks limited - read on to find out why.
• Modine's balance sheet has strengthened, and the company has efficiently managed operational costs and achieved significant bottom-line growth thanks to its 80/20 approach.
• I expect a P/E multiple of 25x by the end of 2026, giving a growth potential of only 25% for the next 3 years. That's 7.7% when annualized.
• In the future, MOD should have to grow only thanks to the promised margin expansion and absolute growth in sales. As one of the growth drivers for the stock seems to be missing today, I've decided to downgrade it to "Hold", albeit with a positive outlook.

Intro & Thesis

My last article on Modine Manufacturing ( MOD ) stock was published in early November 2023. At that time, I argued that Modine management's rather cautious guidance and the subsequent slight correction in the stock made the company even more undervalued. I calculated a medium-term upside potential of around 65% for the next 2 years, but in less than six months my target was far exceeded as the stock actually more than doubled:

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