Data Center Cooling Demand Beats Expectations Again; SPX Technologies Raises Full-Year Guidance and Price Target

Overview

SPX Technologies delivered second-quarter sales, operating profit, and EPS that all exceeded expectations, and once again significantly raised its 2026 operating guidance. The core growth driver is data center cooling demand within the HVAC business, with existing plants achieving higher output through lean manufacturing, process optimization, and added staffing, while new capacity is coming online as planned. The Detection & Measurement business also benefited from a favorable project mix and revenue recognition timing. Based on strong demand, execution, and the contribution from the Neptronic acquisition, J.P. Morgan raised its earnings forecasts and price target, and remains positive on the company’s potential to become a sustained compound growth enterprise.

Core views

First, data center demand is not driven by the single Olympus Max product; core cooling products contributed a larger incremental increase, indicating broad-based demand. Second, output from existing facilities is higher than expected, while new capacity such as Madison is progressing as planned, reducing the risk of further start-up cost overruns. Third, Neptronic adds electric heating, humidification, and controls products, and has growth rates and margins above the segment average, consistent with the company’s disciplined M&A strategy. Fourth, the company’s net leverage remains flexible, enabling continued growth through accretive M&A and organic investment. Fifth, the current valuation carries only a limited premium to the industry and does not yet fully reflect the earnings potential in a reasonable upside scenario.

Analysis framework

The report sequentially reviews second-quarter revenue, margins, cash flow, and segment performance; analyzes data center orders, capacity, supply chain, and M&A contributions; checks management’s raised 2026 guidance; and then revises the 2026–2027 earnings model accordingly. The valuation section combines a 2027 EPS multiple, enterprise growth flywheel valuation, relative peer valuation, PEG, and an upside scenario based on backlog conversion rates to ultimately determine the price target.

Methodology notes

• Earnings ForecastSegment-Driven Earnings Model

  Forecast organic growth, M&A contribution, and margins separately for the HVAC and Detection & Measurement businesses.

  The institution updates the company’s revenue, adjusted EBITDA, and EPS forecasts based on data center revenue guidance, segment backlog, capacity ramp-up, and project mix.

• Valuation methodsRelative P/E Valuation

  Determine equity value using 2027 EPS and a relative premium to the industry.

  The price target uses approximately 29x 2027 EPS, above the industry target multiple of approximately 23x; the premium is based on stronger organic growth and incremental upside from the balance sheet.

• Valuation methodsGrowth Flywheel Valuation

  Map the compounding growth capability formed by organic growth, margin improvement, and capital deployment into per-share value.

  A flywheel analysis based on 2027 EBITDA yields $296 per share; another relative valuation result is $270 per share, and the institution sets the price target at $282 after combining the two.

• Scenario AnalysisBacklog Conversion Upside Scenario

  Estimate a reasonable upside scenario through backlog growth, revenue conversion rate, and incremental margin.

  Assuming backlog grows 5% quarter over quarter over the next six quarters, forward-quarter revenue conversion is approximately 57%, and incremental margin is approximately 30%, 2027 EPS is estimated at $10.75; after adding capital deployment, it is $11.55.

• Peer ComparisonP/E and PEG Comparison

  Compare the company’s valuation level with the industry and companies such as JCI, TT, and VRT in conjunction with earnings growth.

  Under the base forecast, the company trades at approximately 22x 2027 P/E, only about a 0% to 5% premium to the industry; under a reasonable upside scenario, it falls to 20x, and to approximately 18.5x after including capital deployment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• SPX Technologies (SPXC.US)

  Core research subject, benefiting from data center cooling demand, capacity expansion, and M&A-driven growth.

  Strengths

  Strong data center demand across multiple cooling products; rapidly growing backlog; strong key component engineering and supply chain capabilities; good M&A discipline; balance sheet still has room for capital deployment.

  Weaknesses

  The HVAC segment faces near-term margin pressure from new capacity start-up costs, tariffs, inflation, and project mix changes.

  Comparison

  Under the base forecast, 2027 P/E is approximately 22x, a premium of approximately 0% to 5% to the industry; the premium is below the high double-digit levels of JCI and TT, and PEG is only above VRT and JCI.

  Risks

  Data center growth below expectations, insufficient recovery in traditional short-cycle businesses, intensified competition in HVAC, and slower-than-expected ramp-up of new manufacturing capacity.

• HVAC business

  The company’s main growth engine, with data center cooling products contributing the core incremental growth.

  Strengths

  2026 data center revenue is expected to grow approximately 115%, with backlog up 70% year over year; Olympus Max, Everest, cooling towers, dry and adiabatic cooling solutions all benefit.

  Weaknesses

  Expansion start-up costs, tariffs, and a lag in pricing versus inflation weighed on margins in the first half.

  Comparison

  Excluding data centers, business growth is approximately within the 5% to 6% medium-term target range; the data center business is significantly faster than the traditional business.

  Risks

  Customer concentration and high project execution and delivery requirements mean that any supply chain or new plant start-up issues could affect revenue recognition.

• Detection & Measurement business

  Provides a relatively stable operating base and margin contribution.

  Strengths

  Second-quarter organic sales grew 12.8% year over year, segment margin reached 28.9%, and recurring demand remained healthy.

  Weaknesses

  Part of the outperformance came from favorable project mix and approximately $15 million of revenue being pulled forward from the third quarter to the second quarter.

  Comparison

  Full-year 2026 organic growth is expected to be roughly flat, but margin is expected to increase approximately 290 basis points year over year to 26.5%.

  Risks

  Backlog declined approximately 15% year over year, and project timing and mix changes may cause quarterly volatility.

• Neptronic

  Newly acquired business that adds electric heating, humidification, and controls products, and improves HVAC segment margins.

  Strengths

  Expected to achieve high-single-digit growth, margins above the segment average, and a relatively high data center business mix.

  Weaknesses

  Only approximately five months of consolidation in 2026, with near-term contribution limited by the integration pace.

  Comparison

  Segment margin is in the low 40% range, and EBITDA margin is in the mid-40% range, above the average level of SPX’s HVAC segment.

  Risks

  M&A integration, realization of synergies, and future growth below expectations could weaken the accretion effect.

Key data

• Second-quarter adjusted EPS$2.02$0.20 above J.P. Morgan’s forecast.
• Second-quarter organic sales growth16.9% year-over-year growthAbove the institution’s forecast of 9.5%; HVAC and Detection & Measurement grew 18.9% and 12.8%, respectively.
• Second-quarter adjusted EBITDA$151.6 millionUp approximately 20% year over year, with margin improving by 40 basis points to 22.3%.
• Second-quarter adjusted free cash flow$72.1 millionCompared with $37.1 million in the same period last year.
• HVAC backlog$919 millionUp 70% year over year and 22% quarter over quarter, with approximately 30% of orders scheduled for delivery after 2026.
• 2026 data center revenue expectation$430 millionPreviously $350 million, and initially planned at $300 million; current expectation implies approximately 115% year-over-year growth.
• Full-capacity revenue capability for data centersApproximately $1.1 billionPreviously expected at approximately $750 million, with the increase mainly from efficiency improvements at existing plants and new capacity.
• 2026 company revenue guidance$2.705 billion to $2.765 billionPreviously $2.575 billion to $2.645 billion.
• 2026 adjusted EPS guidance$8.20 to $8.60Above market and institutional forecasts before the earnings release.
• 2026 adjusted EBITDA guidance$630 million to $660 millionPreviously $600 million to $625 million.
• Institutional EPS forecasts2026 $8.40; 2027 $9.80Previously $7.98 and $9.10, respectively.
• Price target$282Previously $270; potential upside is approximately 28.4% versus the $219.62 reference share price.

Impact & implications

The simultaneous increase in results and guidance reinforces market confidence in the sustainability of growth in SPX Technologies’ data center cooling business. Order coverage has extended from approximately 1.2 quarters to approximately 1.9 quarters, improving future revenue visibility; efficiency gains at existing facilities and new capacity progressing as planned are expected to drive revenue growth and margin improvement in the second half. If demand is sustained, capacity ramps smoothly, and the company continues to deploy its balance sheet, 2027 earnings could be materially above the current base forecast. However, the price target corresponds to approximately 29x 2027 EPS, still requiring the company to continue delivering growth and execution above the industry.

Risks

• Data center growth is below expectations, or traditional short-cycle businesses fail to recover.
• The HVAC segment faces intensified competition from established large original equipment manufacturers.
• New manufacturing capacity in Madison, Tennessee, and other locations ramps more slowly than expected.
• Start-up costs, tariffs, inflation, or supply chain issues last longer than expected.
• Customer concentration is relatively high, and delivery timing and quality issues could amplify operating volatility.
• Part of the Detection & Measurement business’s second-quarter revenue was recognized early, and subsequent quarters may see timing disruptions.
• The current target valuation includes a growth premium; if earnings delivery falls short of expectations, valuation may compress.
• J.P. Morgan has market-making, client, and investment banking relationships with the company, and investors should assess potential conflicts of interest in conjunction with the disclosures.

What to watch

• Whether 2026 data center revenue can reach $430 million, and whether full-capacity revenue capability can increase as planned to approximately $1.1 billion.
• Progress on the Madison plant’s ramp-up, staffing expansion, and additional production capacity in the first half of 2027.
• Whether the TAMCO Tennessee plant can reach full capacity in 2027.
• Whether HVAC margins in the fourth quarter can exceed the third quarter, and whether pricing actions can offset inflation.
• HVAC backlog growth, order-to-revenue conversion rates, and changes in book-to-bill.
• Whether Neptronic acquisition integration, margin contribution, and approximately $0.05 to $0.06 of EPS accretion can be realized.
• The sustainability of revenue and margins in the Detection & Measurement business in the second half after project pull-forward recognition in the second quarter.
• Whether the company uses approximately 2x net leverage to continue pursuing accretive M&A or organic capital investment.