Why Modine Stock Could Be One of AI's Overlooked Winners?

Modine Manufacturing MOD is quietly emerging as a key beneficiary of the rapid expansion in data center infrastructure, even as investors' attention on the artificial intelligence (AI) buildout tends to gravitate first toward names like Eaton Corporation ETN and Vertiv Holdings VRT.

Modine’s cooling business is gaining momentum as hyperscalers, neoclouds and colocation providers invest heavily in AI and high-performance computing capacity. The question is whether Modine can convert its growing backlog into sustained revenue and earnings growth and whether the market is underpricing that opportunity.

A Backlog That's Building Fast

The early signs are encouraging. Data Center sales jumped 90% year over year in the first quarter of fiscal 2027, with Americas sales surging 112%. The quarter also marked Modine’s third consecutive record for order intake, while its backlog nearly doubled from a year earlier. The company has already started receiving orders under a capacity agreement covering more than $4 billion of Airedale chiller products for 2027 through 2029, providing meaningful visibility into future demand.

Modine is also expanding its product capabilities to keep pace with the increasing thermal demands of AI-focused data centers. Its new 3-megawatt chiller delivers 50% more cooling capacity with only a 9% increase in footprint, helping customers address the growing need for higher cooling density. The new product launches have gained traction across hyperscale, neocloud and colocation customers.

This demand could translate into substantial growth over the next few years. The company expects Data Center sales to increase 60-80% in fiscal 2027, with segment earnings rising more than 85%. It also projects 50-70% organic growth for fiscal 2028.

Can Execution Keep Pace With Demand?

The opportunity comes with an important execution challenge. Modine’s rapid expansion has already exposed supply-chain bottlenecks. Component shortages limited production, creating excess labor and underutilized capacity and pushing Data Center margins down to 14.8% in the last reported quarter from 22.1% a year earlier. Management expects margins to recover to 19-20% in the second quarter as component availability and production efficiency improve.

For investors, Modine's data center opportunity is about more than a strong order book. The company has substantial demand visibility, but its ability to expand capacity, secure components and efficiently convert backlog into shipments will determine how much of that opportunity ultimately reaches the bottom line.

Execution risk is real, and it may explain why Modine still trades at a discount to its closer data-center peers— around 22x forward 12-month earnings versus roughly 28x for Eaton and 32x for Vertiv.

MOD’s F12M Vs. Eaton & Vertiv 

Image Source: Zacks Investment Research

That gap suggests the market is still giving Modine less credit for its AI cooling exposure, even if the stock is far from inexpensive on an absolute basis.

If we look at the stocks’ price performance over the past six months, MOD shares are down 14%, while Eaton and Vertiv gained 15% and 8%, respectively.

6-Month Price Performance 

Image Source: Zacks Investment Research

If Modine’s execution improves alongside demand, the data center business could remain Modine's biggest growth engine for years to come, and the current valuation gap versus peers may prove hard to sustain.

The Zacks Consensus Estimate for Modine’s fiscal 2027 and 2028 EPS implies year-over-year growth of 52% and 41%, respectively.

Image Source: Zacks Investment Research

MOD currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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