At the current price of $97, what is the market’s view of Modine Manufacturing’s future operating performance? Modine Manufacturing’s common shares will need to reach $163 to achieve average annual stock market performance of 9.0% over the next 6 years. Upper quartile performance will require a $192 Modine Manufacturing stock price by 2029.
Executive Summary
- Modine Manufacturing’s important characteristics: high expected growth, very high profitability, above average financial strength, and low stability. A big positive influence on Modine Manufacturing’s valuation is its superior Profitability.
- Very high valuation, leading shareholder returns. Current valuation levels are very high relative to the Modine Manufacturing Peer Group. Recent market returns have significantly outperformed the Modine Manufacturing Peer Group. Total shareholder returns expected to seriously lag the overall equity market. Based on current investor expectations, Modine Manufacturing shares should reach a level of $142 by 2029 — an 6.5% per year total shareholder return. A 2029 stock price of $163 would reflect median performance and a price of $192 would be required to reach upper quartile performance.
- Modine Manufacturing’s achieved growth is very high. Historical growth has been very high relative to the Modine Manufacturing Peer Group and forecasted growth is relatively very high. Equity Growth has been superior. This factor has buoyed market perceptions of Modine Manufacturing. Modine Manufacturing’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. Modine Manufacturing’s consensus growth expectations are in line with past growth.
- Profitability has been Modine Manufacturing’s biggest valuation strength. Pretax ROA, Pretax Margin, Return on Equity, and Asset Turnover are all group leading. These factors have strengthened market perceptions of Modine Manufacturing. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- Modine Manufacturing’s risk profile is favorable. Overall variability has been relatively low with relatively low revenue variability, above average E.P.S. variability, and very high stock price volatility. Financial Strength is relatively high and earnings’ expectations are relatively very high. The debt/capital ratio has declined very significantly.
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