Tuesday, B.Riley maintained a Buy rating on Modine Manufacturing (NYSE:MOD) and raised the price target to $125 from $98 following the company's fourth-quarter earnings. Modine reported results after market close on Thursday, May 21, with gross margin and adjusted EBITDA surpassing expectations, although revenue was slightly below forecasts. The company has now seen its ninth consecutive quarter of year-over-year adjusted EBITDA margin improvement.
The analyst noted that Modine's Climate Solutions (CS) segment saw a modest revenue increase of 0.6%, despite a 4% organic decline, which was more favorable compared to the anticipated 3.0% decrease. The Performance Technologies (PT) segment, however, experienced a revenue drop of 5.4%, with a 2% organic increase, which was better than the expected 6.4% fall.
The positive performance in the CS segment was attributed to strong growth in data center sales, aided by the acquisition of Scott Springfield Manufacturing on March 1, and improvements in heat transfer products due to the company's 80/20 initiatives. This led to a significant rise in gross margin and adjusted EBITDA in the CS segment. Conversely, the PT segment faced declines in liquid-cooled and air-cooled applications but saw growth in advanced solutions, leading to an increase in both gross margin and adjusted EBITDA for the segment.
Modine provided guidance for fiscal year 2025, forecasting continued robust growth in data centers, improved HVAC&R growth, and a return to growth for heat transfer products in the CS segment. In the PT segment, strong growth in advanced solutions is expected to continue. The company anticipates an implied adjusted EBITDA margin of approximately 14.5% for FY25, compared to 13.1% for FY24, indicating that the transformation plan is ahead of schedule as Modine approaches the start of Phase II.
In light of these results, B.Riley has adjusted revenue and adjusted EBITDA estimates for Modine. The price target increase from $98 to $125 reflects a change in the valuation multiple and the progression to a further year in the company's financial forecast.
InvestingPro Insights
Modine Manufacturing (NYSE:MOD) has been a subject of keen interest after its recent earnings report. According to InvestingPro, analysts have flagged a couple of concerns despite the company's strong performance. Specifically, Modine is trading at a high earnings multiple, with a P/E ratio of 33.25, indicating that the stock might be priced optimistically relative to near-term earnings growth. Additionally, the company's P/E ratio has adjusted slightly downward in the last twelve months as of Q4 2024 to 31.83, which could suggest a reevaluation by the market of its growth prospects.
On the brighter side, Modine has demonstrated a high return over the last year, with a one-year price total return of 278.24%. This impressive uptick is reflective of the company's strong market performance and may be an attractive point for investors looking for growth stocks. Furthermore, with liquid assets exceeding short-term obligations, Modine appears to be in a sound liquidity position, which is reassuring for stakeholders concerned about the company's financial resilience.
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