Buy this thermal management stock that's benefiting from the data center buildout, says KeyBanc

KeyBanc Capital Markets initiated coverage of Modine Manufacturing (MOD) with an overweight rating and a $125 price target, citing the company's strategic shift towards high-growth climate opportunities, particularly in data center cooling solutions. Analysts project a compound annual growth rate of roughly 39% from fiscal 2022 through 2026, driven by the increasing demand for cooling in power-hungry data centers supporting AI development, with the data center business expected to represent approximately 30% of sales in FY26E. Despite a 19% pullback in 2024, KeyBanc views current levels as a compelling entry point, believing the price target more accurately reflects the value of Modine's data center business.

Analysis

KeyBanc Capital Markets has initiated coverage on Modine Manufacturing (MOD) with an overweight rating and a $125 per share price target, implying approximately 29% upside from its recent $97.07 close. This optimistic stance is rooted in Modine's strategic shift away from its legacy automotive business towards high-growth climate opportunities, with a significant focus on the burgeoning data center market. The company is leveraging its expertise in thermal management to provide cooling solutions for power-hungry data centers, essential infrastructure for advancing artificial intelligence. Modine's offerings include high-efficiency bespoke cooling systems, which KeyBanc anticipates will drive robust growth, evidenced by the company's forecast of a compound annual growth rate (CAGR) of roughly 39% from fiscal 2022 through 2026. The data center segment is projected to represent about 30% of Modine's sales by fiscal year 2026, with this business expected to achieve an organic CAGR of approximately 48% from fiscal 2022 to fiscal 2026. Despite shares having pulled back 19% in 2025, KeyBanc considers current levels a compelling entry point, asserting that its $125 price target, implying a 15.6x multiple, more accurately reflects the value of Modine's data center operations and its transformational trajectory. The stock has also demonstrated recent positive momentum, rallying 23% in the second quarter.

Key Decisions for Investors

• Given KeyBanc's overweight rating and a $125 price target suggesting 29% upside, investors may find Modine's current valuation an attractive entry point for exposure to the rapidly growing data center cooling market, especially considering the stock's 19% pullback in 2025.
• Investors should closely monitor Modine's execution on its strategy to expand its data center business, particularly its ability to achieve the forecasted ~39% CAGR through fiscal 2026 and ramp up capacity, as these are critical to the investment thesis.
• While the long-term outlook for Modine, driven by AI-related data center demand, appears positive, the stock's 23% rally in the second quarter warrants careful consideration of entry timing and a focus on the company’s ability to sustain its growth momentum and market share gains.