LII — Lennox International Inc.
$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 2026-08-31 at $387.50.
Full Research
Qué hace. Lennox International (NYSE: LII; Richardson, Texas; CEO Alok Maskara; ~14,200 empleados) es fabricante puro de climatización (HVAC) para Norteamérica. Segmentos: Home Comfort Solutions (residencial) y Building Climate Solutions (comercial: azoteas y refrigeración). ~75% de ventas de reemplazo / ~25% construcción nueva; red de ~7,000 instaladores. Transición de refrigerante: eligió R-454B (bajo potencial de calentamiento); en 2026 la mezcla residencial es 100% R-454B vs ~40% R-410A en 2025.
Resultados (segundo trimestre 2026, 29 de julio). Ingresos $1,500 millones (+3%; por debajo del consenso ~$1,560); utilidad ajustada por acción $7.72 (plana, ~$0.11 ARRIBA del consenso). Residencial: ingresos −7% ($936M), unidades −12%, retorno sobre ventas 23.7% (desde 25.0%). Comercial: +24% ($610M), margen 25.5% (desde 24.5%). Utilidad de segmentos $355 millones (+2%). Guía 2026 RECORTADA: utilidad ajustada $23.00–24.00 (antes $23.50–25.00), por menor volumen residencial, productividad recortada a $60M (de $75M) y más amortización de adquisiciones; crecimiento de ingresos ~8% reafirmado (~5 puntos de adquisiciones); flujo libre $750–850 millones; residencial recortado a ~1% (de 4%), comercial subido a ~20% (de 16%). La dirección: hipotecas elevadas, inflación y confianza del consumidor históricamente baja; recuperación residencial pospuesta a 2027. El destocking del canal tras el pre-compre de R-410A terminó y el reabastecimiento empezó en el trimestre. La acción cayó ~19% con el reporte.
Adquisiciones. División HVAC de NSI Industries (Duro Dyne/Supco, ~$550 millones; cerró 16 de octubre de 2025) ya contribuye al crecimiento 2026; acuerdo por Heat Controller (Comfort-Aire, Century; 18 de junio de 2026), cierre esperado a fin de 2026.
Retorno al accionista. Dividendo trimestral $1.36 ($5.44 anual, ~1.4%), subido 4.6% el 21 de mayo de 2026; 17 años consecutivos de aumentos y 28 de pagos; payout ~25%. Recompras: ~$130 millones en el segundo trimestre (260,627 acciones).
Acción. $387.50 de apertura (31 de agosto de 2026) — en su mínimo de 52 semanas (rango $382.13–$587.27, −34% desde el máximo); capitalización ~$13,200 millones; P/E 17.0x TTM / 14.6x forward. Camino 2026: el primer trimestre (29 de abril) batió estimados y subió la guía de ingresos (+7% la acción); el recorte del 29 de julio la hundió ~19%. Consenso Buy; target promedio ~$511 (+32%; rango $450–668; post-recorte: Goldman $547 Buy, Baird $495 Neutral, Oppenheimer $575 Outperform).
Riesgos. (1) Residencial: unidades −12%, recuperación pospuesta a 2027, guía ya recortada una vez. (2) Resaca del refrigerante: pre-compre 2025 adelantó demanda; R-454B más caro (recargo de 42% de Honeywell al refrigerante) empuja reparar-vs-reemplazar. (3) Aranceles sobre componentes (volátiles en ambas direcciones; +$11M de reembolsos en el trimestre). (4) Competencia Trane/Carrier/Daikin en downcycle sensible al precio. (5) Integración de NSI y Heat Controller (amortización). (6) El mínimo de 52 semanas puede seguir bajando; tesis con horizonte a 2027.
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.