MOD Stock Forecast: Under Valued Price with Unlocked Value Behind

Yuwei ZhouThis MOD Stock Forecast article was written by Yuwei Zhou – Financial Analyst at I Know First.

Highlights

  • Net sales of $578.8 million increased by 21% from the prior year.
  • Operating income of $36.8 million increased by $26.3 million from the prior year.
  • The ROE of MOD is 28.54%, ranked better than 92.66% of companies in the Vehicles & Parts industry.
  • PEG Ratio indicates that the price of MOD may still be undervalued.

Overview

Modine Manufacturing (NYSE: MOD) is a thermal management company established in 1916 in the United States. The company started as Modine Manufacturing Company by Arthur B Modine who patented the Spirex radiator for tractors. Modine Engineers a Cleaner, Healthier World Building on more than 100 years of excellence in thermal management, which provides trusted systems and solutions that improve air quality and conserve natural resources. Its employees are at work in every corner of the globe, delivering the solutions that customers need.

Strategic Initiatives are Beginning to Unlock the Value in Modine

Net sales increased 21% in the second quarter to $578.8 million, compared with $478.9 million in the prior year. On a constant currency basis, sales increased by 28 percent. The increase was driven by market-related volume improvements and favorable pricing adjustments in both the Climate Solutions and Performance Technologies segments. Gross profit increased 45% in the second quarter to $96.2 million and gross margin improved by 280 basis points to 16.6 percent. These increases were driven by the higher sales volume and commercial pricing in both the Climate Solutions and Performance Technologies segments, partially offset by inflationary cost pressures, particularly within the Performance Technologies segment. 

Operating income in the second quarter was $36.8 million, compared to $10.5 million in the prior year, an improvement of $26.3 million.  This improvement was driven primarily by higher gross profit and lower impairment charges, partially offset by higher SG&A expenses.  During the second quarter of fiscal 2023, the Company recorded $0.6 million of restructuring expenses, primarily related to equipment transfer costs and closure costs related to a previously-leased facility, and $0.3 million of environmental charges.  Excluding these items, as well as depreciation and amortization expenses, adjusted EBITDA of $51.1 million increased by $21.6 million, or 73%, compared with $29.5 million in the prior year. 

*Source: investors.modine.com
(Q2 FY23 refers to the quarter that ended September 30, 2022)

Healthy Financial Condition with Low Valued Price

The actual EPS has beaten the market estimation 4 times from Q4 2021. In the meanwhile, the earnings have increased continuously for 3 quarters. And the total revenue goes up with small fluctuations. MOD has a healthy financial condition, which supports a bright forecast based on outstanding profitability.

According to Gurufocus, the ROE of MOD is 28.54%, ranked better than 92.66% of 1213 companies in the Vehicles & Parts industry. Meanwhile, the Net Margin of MOD is 5.52%, outperforming 68.4% of 1212 companies in the same industry. The Piotroski F-Score of MOD is 7 out of 9, which is a very healthy and safe institution compared to the companies with a similar market cap. The Altman Z-Score is 3.27 as of today, and the medium of MOD’s Altman Z-Score range over the past 10 years is 3.46, so the Z-Score is continuously strong. Z is an important indicator to measure whether an enterprise is about to face a financial crisis, so it can be seen that MOD’s financial situation is stable and safe.

It is worth noting that the PEG Ratio of MOD is 0.4 now. The PEG ratio is a company’s Price/Earnings ratio divided by its earnings growth rate over a period, which adjusts the traditional P/E ratio by taking into account the growth rate in earnings per share that are expected in the future. Compared to the industry average of 1.01, PEG Ratio shows that the price of MOD is still undervalued.

Next, let’s take American Axle & Manufacturing Holdings, Inc. (AXL), Patrick Industries, Inc. (PATK), Solid Power, Inc. (SLDP), Standard Motor Products, Inc. (SMP), and Stoneridge, Inc. (SRI) as comparable companies to evaluate MOD’s financial competitiveness.

As the chart shows below, MOD’s ROE is 29.83%, While the average of the peers is 15.02%, MOD’s performance is almost twice the average. The growth of EBITDA is also outstanding to see, which is as high as 35.02% and far more than the vast majority of enterprises in the industry. These strong competitive abilities of profitability ensure plenty of cash flow to feedback to shareholders and support R&D activities on further development.

As for the valuation comparison, MOD’s P/E ratio of 9.13 is low compared to the average of 13.56. The P/S ratio is 0.50, while the peers’ average is 0.53. Combined with the profitable performance discussed above, this stock is still in a low-valued range.

*Mean is calculated without taking into account AXL and SRI as outliers
**Mean is calculated without taking into account AXL and SLDP as outliers
Data source: seekingalpha.com
(Figure 2: Price Ratios for MRO and Its Peers)

Conclusion

I take a buy-side on MOD’s stock. The Ongoing focus on commercial excellence, driven by 80/20 principles, is driving the company to more efficiently allocate capital and improve margins in this inflationary environment. I believe MOD will continue to reduce complexity while focusing on opportunities, allowing itself to gain a share in those markets and make progress toward margin targets.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the AMZN stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with MOD Stock Forecast

I Know First has been bullish on the MOD stock forecast in the past. On October 16th, 2022 the I Know First algorithm issued a forecast for MOD stock price and recommended MOD as one of the best automotive stocks to buy. The AI-driven MOD stock prediction was successful on a 1-month time horizon resulting in more than 52.61%.

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Please note-for trading decisions use the most recent forecast.