One of the biggest stories in Tuesday’s trading was the news that Macy’s ( M ) is closing 150 of its stores over the next three years. Fifty closures will come in 2024, with the remaining 100 in the 24 months after that.
The closings are part of the company’s focus on luxury shoppers through its Bloomingdale’s and Bluemercury brands. Part of its strategy includes opening 30 smaller stores that are not in malls over the next two years.
At the same time, it continues to fend off activist investors. It rejected a $6 billion bid in January. The problems facing department stores don’t seem to want to go away.
Two companies that are doing much better are Groupon (GRPN) and Modine Manufacturing (MOD). Both are Barchart.com Top 100 Stocks to Buy. Both have share prices up more than 100% over the past year.
The question to answer: Which is the best purchase?
Here’s my two cents.
Come a Long Way from Groupon
Groupon is currently ranked 11th in the top 100. Its weighted alpha is 276.00, while its stock is up 148% over the past 52 weeks. This suggests that the stock is gaining momentum. They are up 35% over the past month.
What is happening with the online provider of daily discount offers?
Last time I checked, it was trading and in the single digits. As recently as November, it was below $10. In May of last year, it hit a five-year low of $2.89. It increased 535% in the nine months since.
In January, Groupon provided investors with a business update, saying that Q4 2023 revenue and adjusted EBITDA would be at the high end of their guidance for the year. In addition, free cash flow would be positive.
In 2024, it expects revenues to be flat to 5% lower over 2023, with $90 million in EBITDA at the midpoint of its guidance, with positive free cash flow for the full year.
For the first nine months of 2023, its revenue was $377.2 million, down 16% from a year earlier. Its adjusted EBITDA through the first nine months was $28.5 million, considerably better than -$9.8 million in the first nine months of 2022.
Its 2024 results will be much better than in 2023.
At the same time as the update, Roth MKM analyst Sean McGown reiterated his Buy rating with a price target of $28, 53% higher than where it is currently trading.
“We believe that a year from now, the stock will trade at an EV/Revenue multiple of at least 1.2x our 2025 revenue estimate of $599M, and an EV/EBITDA multiple of at least 4.8x our 2025 Adjusted EBITDA estimate, which supports our price target of $28,” The Cantech Letter reported McGown’s note to clients.
As the business grows stronger, it still has to figure out how to get revenue and profits growing at the same time. That might come in 2025.
Climate Change Keeps Modine Busy
Modine is currently ranked 16th in the top 100. Its weighted alpha is 255.4, while its stock is up 270% over the past 52 weeks.
If you haven’t heard of Modine, it provides heating and cooling solutions, including HVAC, commercial vehicles, data centers, agriculture, construction and refrigeration.
The company’s stock is doing well because of its transformation into higher-growth, higher-margin businesses such as data centers. As a result of this transformation, it delivered record results in fiscal 2023 (March year-end), with revenues of $2.30 billion, 12% higher than 2022, with adjusted earnings per share of $1.95, 59% higher than a year earlier.
As for the balance sheet, it reduced its net debt by $47 million to $286 million in the past year, or just 6.1% of its market cap. It could pay off some of its debt as it generated record operating cash flow of $215 million, double its cash flow a year earlier.
Although it emphasizes an 80/20 operating principle and leans towards organic growth, it also wants to make strategic acquisitions that accelerate its future growth.
On February 26, it announced the acquisition of Scott Springfield Manufacturing in Calgary, a leading manufacturer of air handling units (AHU).
“The acquisition is right in line with our transformation and will bring to Modine a product line and customer base in high-growth markets that fully complement and expand our current reach, including to hyperscale data center operators,” stated Modine CEO Neil D. Brinker.
The enterprise value of the transaction was $190 million. Scott Springfield’s revenue in 2023 was about $100 million, so it pays 2x sales, including the assumption of debt.
Only four analysts cover MOD stock. However, all four rate it a Buy, with the highest target price of $98, about 10% higher than where it currently trades.
The Verdict
While the two companies have similar EBITDA margins, Modine’s potential sales and profit growth is considerably better than Groupon’s.
In fiscal 2024, Modine expects sales to grow by 4-7% over 2023, with adjusted EBITDA growth of 46% year over year over 2023, to $313 million, a margin of more than 12%, considerably higher than this past. a year
Based on the analyst’s fiscal 2025 EPS estimate of $3.74, Modine’s stock trades at a reasonable 24x those earnings.
Kudos to Groupon for improving their business, but Modine remains the better buy.
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As of the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.