LII — Lennox International Inc.
Price when we picked it (Aug 31, 2026)
$387.50
Target: $511.15 (+31.9%)
P/E Ratio
17.0
P/E Forward
14.6
Dividend
1.4%
Market Cap
$13.2B
EPS
$22.5
Consensus
Buy
What they do
Lennox International (Richardson, Texas; CEO Alok Maskara; ~14,200 employees) makes pure-play climate control for North America in two segments: Home Comfort Solutions (residential — heating and air for homes, ~60% of revenue) and Building Climate Solutions (commercial — rooftop units and refrigeration for stores, restaurants and warehouses). It sells directly to a network of ~7,000 installers under the Lennox brand.
The key to the business: ~75% of sales is replacement — the air conditioner that dies gets replaced, it doesn't wait for the economic cycle — and only ~25% is new construction. In 2026 it completed the transition to the eco refrigerant R-454B (100% of the residential mix, vs ~40% in 2025), a regulatory change that made everyone's equipment more expensive.
It also grows by buying: it integrated NSI Industries' HVAC division (~$550 million, closed October 2025) and signed the purchase of Heat Controller (Comfort-Aire and Century brands, closing late 2026). The second quarter showed the split picture: residential −7% in revenue (−12% in units) on expensive mortgages and consumer confidence at lows, commercial +24% with record margin.
Why we like it
Three reasons.
- WE'RE BUYING THE BAD QUARTER, NOT A BAD COMPANY: the stock fell ~19% the day it cut guidance (July 29) and today trades at its 52-week low, −34% from the peak ($587) — but the quarter's adjusted earnings BEAT consensus ($7.72), the commercial segment's margin rose to 25.5% with sales +24%, and the cut itself reaffirmed ~8% revenue growth for the year. The punishment was for residential volume — the part that recovers on its own when rates fall; management postponed it to 2027, it didn't cancel it.
- 75% OF THE BUSINESS IS REPLACEMENT: the AC that dies in July gets replaced — demand that can be deferred for months, not eliminated; meanwhile, the channel destocking after 2025's refrigerant pre-buy is DONE and restocking began.
- CHEAP WITH DISCIPLINED CASH: 14.6x expected earnings, a 1.4% dividend just raised 4.6% (17 consecutive years of increases, ~25% payout), ~$130 million repurchased in the second quarter alone and guided free cash flow of $750–850 million. Buy consensus, average target ~$511 (+32%; Goldman $547, Oppenheimer $575).
Key Risk
#1: residential can keep falling. Units fell 12% in the second quarter on expensive mortgages and consumer confidence at historic lows; the recovery has already been pushed to 2027 and guidance has already been cut once ($23.00–24.00 adjusted EPS, from $23.50–25.00) — another cut would punish it again. Others:
- the refrigerant hangover: the 2025 R-410A pre-buy pulled demand forward, and new R-454B systems are pricier (Honeywell imposed a 42% refrigerant surcharge) — pushing people to repair instead of replace;
- tariffs on components: volatile costs in both directions (the quarter included $11 million of refunds);
- competition from Trane, Carrier and Daikin in a price-sensitive downcycle;
- acquisition integration (NSI, Heat Controller) adds amortization and complexity;
- buying at the low feels good, but lows sometimes keep falling — this thesis demands patience into 2027.
This is educational and informational content, not financial advice. Always consult a qualified financial advisor before making investment decisions.
Vectorial Data picked LII on Aug 31, 2026 at $387.50.
Full Research
What it does. Lennox International (NYSE: LII; Richardson, Texas; CEO Alok Maskara; ~14,200 employees) is a pure-play North American HVAC maker. Segments: Home Comfort Solutions (residential) and Building Climate Solutions (commercial: rooftops and refrigeration). ~75% replacement sales / ~25% new construction; a network of ~7,000 installers. Refrigerant transition: it chose R-454B (low global warming potential); in 2026 the residential mix is 100% R-454B vs ~40% R-410A in 2025.
Results (Q2 2026, July 29). Revenue $1.5 billion (+3%; below ~$1.56 billion consensus); adjusted EPS $7.72 (flat, ~$0.11 ABOVE consensus). Residential: revenue −7% ($936M), units −12%, return on sales 23.7% (from 25.0%). Commercial: +24% ($610M), margin 25.5% (from 24.5%). Segment profit $355 million (+2%). 2026 guidance CUT: adjusted EPS $23.00–24.00 (previously $23.50–25.00), on lower residential volumes, productivity cut to $60M (from $75M) and more acquisition amortization; ~8% revenue growth reaffirmed (~5 points from acquisitions); free cash flow $750–850 million; residential cut to ~1% (from 4%), commercial raised to ~20% (from 16%). Management: elevated mortgages, inflation and historically low consumer confidence; residential recovery postponed to 2027. Channel destocking after the R-410A pre-buy is complete and restocking began in the quarter. The stock fell ~19% on the report.
Acquisitions. NSI Industries' HVAC division (Duro Dyne/Supco, ~$550 million; closed October 16, 2025) already contributes to 2026 growth; agreement for Heat Controller (Comfort-Aire, Century; June 18, 2026), closing expected late 2026.
Shareholder returns. Quarterly dividend $1.36 ($5.44 a year, ~1.4%), raised 4.6% on May 21, 2026; 17 consecutive years of increases and 28 of payments; ~25% payout. Buybacks: ~$130 million in Q2 (260,627 shares).
Stock. $387.50 at the open (August 31, 2026) — at its 52-week low (range $382.13–$587.27, −34% from the peak); market cap ~$13.2 billion; P/E 17.0x TTM / 14.6x forward. 2026 path: Q1 (April 29) beat and raised the revenue outlook (+7% for the stock); the July 29 cut sank it ~19%. Buy consensus; average target ~$511 (+32%; range $450–668; post-cut: Goldman $547 Buy, Baird $495 Neutral, Oppenheimer $575 Outperform).
Risks. (1) Residential: units −12%, recovery pushed to 2027, guidance already cut once. (2) Refrigerant hangover: 2025 pre-buy pulled demand forward; pricier R-454B (Honeywell's 42% refrigerant surcharge) pushes repair-vs-replace. (3) Component tariffs (volatile both ways; +$11M refunds in the quarter). (4) Trane/Carrier/Daikin competition in a price-sensitive downcycle. (5) NSI and Heat Controller integration (amortization). (6) The 52-week low can keep falling; a thesis with a 2027 horizon.
This is not financial advice. Consult a certified financial advisor.
The author may hold positions in the securities discussed.
Past performance does not guarantee future results.