Expanding Data Centers And HVAC Will Fuel Future Opportunity

Key Takeaways

• Surging demand from data centers and energy-efficient solutions is driving strong revenue growth, improved margins, and expansion into high-tech, high-growth markets.
  
• Strategic investments in manufacturing, supply chain localization, and selective acquisitions are enhancing operational leverage, customer visibility, and long-term earnings potential.
  
• Strategic shifts away from legacy businesses and regional overexposure heighten execution risks, margin pressure, and operational challenges during expansion, integration, and restructuring efforts.

Catalysts

Designs, engineers, tests, manufactures, and sells mission-critical thermal solutions in the United States, Canada, Italy, Hungary, the United Kingdom, China, and internationally.

• The accelerating build-out of data centers and the need for next-generation cooling solutions are driving extraordinary demand for Modine's products, with management forecasting the potential to double data center revenues from ~$1 billion in fiscal '26 to $2 billion by fiscal '28; this structural demand from digital infrastructure is set to materially boost revenue growth and deliver significant operating leverage over time.
  
• The company's investments in U.S.-based manufacturing capacity and local-for-local supply chains, paired with innovative modular data center offerings, create a unique ability to win and rapidly fulfill large customer orders-improving visibility, expanding addressable markets, and supporting both revenue and long-term margin expansion.
  
• Intensifying customer focus on energy efficiency, emissions reduction, and climate-resilient infrastructure is generating strong secular tailwinds for Modine's portfolio in HVAC, indoor air quality, and data center cooling-an environment likely to grow the company's recurring revenue streams and support elevated margins and EPS growth.
  
• Strategic acquisitions in HVAC and air quality (AbsolutAire, L.B. White, CDI) and disciplined divestiture of legacy/low-margin businesses are elevating the company's portfolio quality, bolstering future net margins through both revenue and cost synergies, and increasing Modine's penetration into high-tech, high-growth verticals.
  
• High levels of visibility into multi-year customer pipeline and backlog-enabled by deep integration with OEMs, strategic partnerships, and first-mover status with bespoke data center solutions-provide reliable support for sustained earnings growth and a long runway for operating margin improvement as new capacity is utilized.

Modine Manufacturing Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Modine Manufacturing's revenue will grow by 15.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.2% today to 11.4% in 3 years time.
• Analysts expect earnings to reach $453.0 million (and earnings per share of $8.26) by about August 2028, up from $187.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.8x on those 2028 earnings, down from 38.2x today. This future PE is greater than the current PE for the US Auto Components industry at 15.6x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.85%, as per the Simply Wall St company report.

Modine Manufacturing Future Earnings Per Share Growth

Risks

• Persistent weakness and focus on exiting lower-growth Performance Technologies (including heavy-duty and light-duty vehicular applications) exposes Modine to long-term risks if end markets for traditional combustion or ICE cooling continue to decline, shrinking its legacy revenue base and weakening future earnings and operational leverage.
  
• Significant capital allocation and heavy inventory build tied to aggressive data center expansion carries the risk that rapid customer deployment schedules and new orders could decelerate or be delayed, potentially leaving Modine with underutilized capacity, unabsorbed costs, and lower-than-expected margins.
  
• Integration of multiple acquisitions (AbsolutAire, L.B. White, CDI) carries execution risk, especially as near-term incremental margins are below segment averages, and additional resources are required for stabilization, which could weigh on net margins and create unforeseen operational disruptions if not managed effectively.
  
• Modine's data center and HVAC growth strategy is concentrated in North America, making the company vulnerable to overexposure in the event of a regional cyclical slowdown, industry commoditization, or increased competitive pricing pressure, which could erode both revenue growth rates and EBITDA margins over time.
  
• Ongoing divestitures and restructuring intent-such as plans to exit $250–$300 million in light-duty business and further rationalizations-may reduce company scale, further concentrate remaining business risk, and leave Modine exposed to periods of lower free cash flow as it works to offset lost revenue and absorb one-time costs.

Valuation

• The analysts have a consensus price target of $158.0 for Modine Manufacturing based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $185.0, and the most bearish reporting a price target of just $145.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.0 billion, earnings will come to $453.0 million, and it would be trading on a PE ratio of 22.8x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $136.59, the analyst price target of $158.0 is 13.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.