Buy or Sell Lennox International Stock?
Lennox International (LII) stock has fallen 10% during the past day, and is currently trading at $493.07. We believe there are a few things to fear in LII stock given its overall Moderate operating performance and financial condition. This is aligned with the stock’s Moderate valuation because of which we think it is Fairly Priced.
Below is our assessment:
| CONCLUSION | |
|---|---|
| What you pay: | |
| Valuation | Moderate |
| What you get: | |
| Growth | Inconsistent |
| Profitability | Moderate |
| Financial Stability | Strong |
| Downturn Resilience | Strong |
| Operating Performance | Moderate |
| Stock Opinion | Fairly Priced |
LII stock has fallen meaningfully recently and we currently find it fairly priced. This may feel like a caution, and there is significant risk in relying on a single stock. However, there is a huge value to a broader diversified approach we take with Trefis High Quality Portfolio. Let us ask you this: Over the last 5 years, which index do you think the Trefis High Quality Portfolio outperformed – the S&P 500, S&P 1500 Equal Weighted, or both? The answer might surprise you. See how our advisory framework helps stack the odds in your favor.
Let’s get into details of each of the assessed factors but before that, for quick background: With $17 Bil in market cap, Lennox International provides heating, ventilation, air conditioning, and refrigeration products including furnaces, air conditioners, heat pumps, and refrigeration solutions for residential and commercial markets.
[1] Valuation Looks Moderate
| LII | S&P 500 | |
|---|---|---|
| Price-to-Sales Ratio | 3.2 | 3.3 |
| Price-to-Earnings Ratio | 20.6 | 24.5 |
| Price-to-Free Cash Flow Ratio | 32.4 | 21.2 |
This table highlights how LII is valued vs broader market. For more details see: LII Valuation Ratios
[2] Growth Is Inconsistent
- Lennox International has seen its top line grow at an average rate of 5.2% over the last 3 years
- Its revenues have grown 3.8% from $5.2 Bil to $5.3 Bil in the last 12 months
- Also, its quarterly revenues declined -4.8% to $1.4 Bil in the most recent quarter from $1.5 Bil a year ago.
| LII | S&P 500 | |
|---|---|---|
| 3-Year Average | 5.2% | 5.4% |
| Latest Twelve Months* | 3.8% | 5.2% |
| Most Recent Quarter (YoY)* | -4.8% | 6.1% |
This table highlights how LII is growing vs broader market. For more details see: LII Revenue Comparison
[3] Profitability Appears Moderate
- LII last 12 month operating income was $1.1 Bil representing operating margin of 19.9%
- With cash flow margin of 12.8%, it generated nearly $684 Mil in operating cash flow over this period
- For the same period, LII generated nearly $841 Mil in net income, suggesting net margin of about 15.7%
| LII | S&P 500 | |
|---|---|---|
| Current Operating Margin | 19.9% | 18.6% |
| Current OCF Margin | 12.8% | 20.4% |
| Current Net Income Margin | 15.7% | 12.7% |
This table highlights how LII profitability vs broader market. For more details see: LII Operating Income Comparison
[4] Financial Stability Looks Strong
- LII Debt was $1.4 Bil at the end of the most recent quarter, while its current Market Cap is $17 Bil. This implies Debt-to-Equity Ratio of 7.9%
- LII Cash (including cash equivalents) makes up $59 Mil of $3.5 Bil in total Assets. This yields a Cash-to-Assets Ratio of 1.7%
| LII | S&P 500 | |
|---|---|---|
| Current Debt-to-Equity Ratio | 7.9% | 21.1% |
| Current Cash-to-Assets Ratio | 1.7% | 7.0% |
[5] Downturn Resilience Is Strong
LII has been more resilient than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.
2022 Inflation Shock
- LII stock fell 47.4% from a high of $353.91 on 7 July 2021 to $186.27 on 16 June 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 27 July 2023
- Since then, the stock increased to a high of $678.43 on 25 November 2024 , and currently trades at $493.07
| LII | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -47.4% | -25.4% |
| Time to Full Recovery | 406 days | 464 days |
2020 Covid Pandemic
- LII stock fell 35.9% from a high of $260.21 on 6 March 2020 to $166.87 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 23 July 2020
| LII | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -35.9% | -33.9% |
| Time to Full Recovery | 122 days | 148 days |
2008 Global Financial Crisis
- LII stock fell 52.1% from a high of $41.50 on 26 December 2007 to $19.89 on 20 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 11 February 2010
| LII | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -52.1% | -56.8% |
| Time to Full Recovery | 448 days | 1480 days |
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read LII Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.