Modine Manufacturing Reports Soon. Here's Why I'd Buy Before the Number Drops.
Key Points
Modine Manufacturing has consistently had earnings surprises.
The company is spinning off its less profitable Performance Technology segment.
Modine will be able to pay off some of its debt, thanks to the spinoff.
Modine Manufacturing (NYSE: MOD) is in a cool spot right now, thanks to the growth in data centers. Modine, based in Wisconsin, focuses on heating, ventilation, and cooling solutions and is a key supplier to the rapidly expanding data center sector.
While the stock is up 1% over the past month, it lags the S&P 1500 Semiconductor Index, which is up 18% over the same period. Clearly, semiconductors are in demand. Much of the demand for semiconductors is tied to the growth of data centers, which need cooling services. This presents an opportunity for Modine investors.
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Modine is scheduled to report fourth-quarter fiscal 2026 earnings on May 26. Here are three reasons why it makes sense to get in on the stock now before those numbers are released.
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1. Analysts are expecting a pleasant surprise
Analysts project the company's Q4 earnings per share (EPS) to be $1.55, reflecting a 68% increase from the same quarter last year. Meanwhile, the latest analysts' consensus estimate predicts revenue of $920.7 million, a 42% increase from the same quarter of the previous year.
In the third quarter, Modine reported sales of $805 million, up 31% year over year, and adjusted EPS of $1.19, up 29% over the same quarter in 2025. Modine management said it expects full-year revenue to rise by 20% to 25% to $3.1 billion to $3.23 billion, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $455 million to $475 million, up 18% at the midpoint.
Investors seem to be taking a wait-and-see attitude about Modine's earnings, but if it exceeds expectations, as it has the past 14 quarters, the stock will likely get a nice bump.
Modine recently increased its guidance, so the likelihood of an operational miss is low, while the chance of a traditional beat-and-raise for early fiscal 2027 is high.
2. A planned spinoff will lead to a more profitable company
Modine Manufacturing announced on Jan. 29 that it plans to spin off its Performance Technologies business and combine it with Gentherm (NASDAQ: THRM) via a tax-free Reverse Morris Trust (RMT) transaction. The move will allow Modine to carve out its legacy, automotive-heavy vehicle thermal business, which has lagged in recent years, to focus on its higher-margin Climate Solutions segment.
The legacy Performance Technologies segment focuses on internal combustion engine vehicles, including heavy-duty trucks and commercial transport vehicles. In the third quarter, its Performance Technologies revenue rose 1%, while its Climate Solutions segment increased revenue by 51% year over year.
Post-spinoff, Modine will be a pure-play climate solutions provider, entirely focused on data centers and commercial HVAC and refrigeration.
3. The spinoff will allow Modine to retire debt
The upcoming earnings report will be the first major platform for management to give structural and timeline updates on the recently announced Performance Technologies spinoff. To some degree, the market is still valuing Modine as a hybrid industrial/auto-parts company. The company receives a $210 million cash distribution from Gentherm and will likely use that to pay down its debt ratio and drive pro forma net leverage from 1.2x (as of Dec. 31) to below 1.0x.
That will allow the company flexibility for add-on acquisitions or to buy back stock, and provide a cushion to help fund its growth.
James Halley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Modine Manufacturing. The Motley Fool has a disclosure policy.