Lennox International
LII
$348.08
-0.76%
Lennox International manufactures and distributes heating, ventilation, air conditioning and refrigeration equipment, selling primarily into North American replacement demand (roughly 75% of sales) with the balance tied to new construction, split between residential home-comfort solutions (about 67% of sales) and commercial/light-commercial building climate systems (about 33%). It is a scaled but narrowly focused HVAC pure-play rather than a diversified multi-industry conglomerate, competing on brand strength (Lennox as flagship alongside allied brands), dealer and distribution relationships, and a replacement-driven aftermarket that historically cushions cyclical swings. The current investor debate has shifted sharply from margin-expansion enthusiasm to demand durability: after a strong first half in which quarterly revenue grew double digits and gross margins held in the low-to-mid 30s, the stock suffered a violent late-July de-rating and has continued to slide through October's Q3 print, with sell-side sentiment now overwhelmingly neutral and several firms trimming ratings. Investors are weighing whether residential replacement volumes and commercial light-construction activity are entering a softer multi-year stretch against a still-profitable, cash-generative franchise trading at a materially compressed multiple.…
LII
Lennox International
$348.08
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Investment Opinion: Should I buy LII Today?
Rating: Hold. Lennox is a still-profitable, cash-generative HVAC franchise whose stock has been de-rated by roughly 42% from its peak, but with the shares at $341.97 — only 6.2% above the $322.00 52-week low, a consensus recommendation mean of 2.94 (2 Buy / 15 Hold / 1 Sell), and an average target of $371.92 implying just +8.8% upside — the risk/reward is balanced rather than compelling. The core thesis is that expectations, not the business, have broken: revenue still grew 10.21% year-over-year in Q3 2026 and trailing operating margin remains 20.05%, yet three downgrades and no upgrades since September argue the estimate cuts may not be finished.
Supporting evidence for holding rather than selling is valuation-led: the stock trades at 21.77x trailing but only 14.57x forward earnings (a 33% compression) against consensus EPS of about $29.30, with a 4.9% FCF yield on $835.7 million of trailing free cash flow and a 1.02% dividend backed by a conservative 21.5% payout ratio. Offsetting that, gross margin compressed to 31.62% from 33.29% a year earlier (about 170bps), net margin fell to 14.07% from 17.23%, and operating income of $312.1 million was flat despite 10% higher revenue — so the forward EPS that justifies the cheap multiple is precisely what is at risk. Price-to-book of 14.57x and EV/EBITDA of 16.43x are not cheap for decelerating growth, and the stock's -39.94% one-year relative strength versus the S&P 500 shows no sign of a bottom.
This Hold would upgrade to Buy if Q4 results show gross margin stabilizing back above roughly 33% and management guides to residential replacement demand flattening, or if the forward PE compresses below about 13x on unchanged estimates (roughly $380 downside-adjusted entry). It would downgrade to Sell if consensus EPS of $29.30 is cut materially, if gross margin breaks below 31%, or if the stock decisively loses the $322.00 52-week low, which would open new-low territory with no historical support. On balance the stock is fairly valued to modestly undervalued on forward earnings but expensive on book and sales relative to its own history — a value opportunity only if the earnings estimate holds, which is not yet proven.
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LII 12-Month Price Forecast
The 12-month setup is genuinely two-sided: at 14.57x forward earnings with a 4.9% FCF yield and 10.21% revenue growth, Lennox screens as a de-rated quality franchise rather than a broken business, which is why the base case (55% probability, $350-$400) dominates. But the bear case carries real weight at 25% because the cheap multiple depends entirely on consensus EPS of about $29.30 holding while gross margin is compressing and analysts are cutting rather than defending — the $350 low target sits only 2.3% above the current price, offering essentially no downside cushion. The bull case (20%, $450-$524) requires a margin recovery and a re-rating that would only follow evidence of stabilizing replacement demand, which does not yet exist. I would upgrade to bullish on a Q4 print showing gross margin back above 33% with intact guidance, and downgrade to bearish on a break below the $322.00 52-week low or any cut to the forward EPS estimate.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Lennox International's 12-month outlook, with a consensus price target around $371.92 and implied upside of +6.8% versus the current price.
Average Target
$371.92
18 analysts
Implied Upside
+6.8%
vs. current price
Analyst Count
18
covering this stock
Price Range
$350 - $524
Analyst target range
Coverage is broad but conviction is weak. Thirteen analysts cover Lennox with a distribution of 2 Buy, 15 Hold and 1 Sell, producing a consensus recommendation of "hold" and a recommendation mean of 2.94 (where 3.0 is a pure hold). The average target price of $371.92 implies roughly +8.8% upside from the current $341.97, which is a modest, neutral-leaning signal rather than an endorsement. Notably, the consensus target sits barely above the current price despite a 30% one-year decline, suggesting analysts have been chasing the stock down rather than defending a higher fair value.
The target range is wide and revealing: a low of $350.00 (only about 2.3% above the current price) and a high of $524.00 (roughly 53% above), a spread of $174 or about 47% of the current price — a clear signal of high uncertainty. The high target requires a re-rating toward the mid-20s forward multiple and a stabilization of residential replacement demand plus commercial light-construction activity; the low target essentially prices in continued margin compression and estimate cuts with no multiple recovery. Institutional actions confirm the negative drift: Goldman Sachs downgraded from Buy to Neutral on October 14, Deutsche Bank moved from Buy to Hold on September 14, and Oppenheimer cut from Outperform to Perform on October 29 following the Q3 print, while Morgan Stanley has maintained an Underweight stance. With no upgrades in the recent record and multiple downgrades clustered around earnings, the analyst signal is one of deteriorating sentiment rather than a contrarian bottom.
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Bulls vs Bears: LII Investment Factors
The bear case currently has stronger evidence: the stock is in an accelerating downtrend only 6.2% above its 52-week low, sell-side sentiment has deteriorated with three downgrades and no upgrades, and gross margin has compressed roughly 170bps year-over-year. The bull case rests on valuation — a 14.57x forward PE near the bottom of the multi-year band, a 4.9% FCF yield, and still-positive 10.21% revenue growth — which suggests expectations, not the business, have broken. The single most important tension is whether forward EPS of about $29.30 holds: if it does, the 14.57x multiple is genuinely cheap; if estimates are cut, that forward multiple is illusory and the stock has further to fall. Until residential replacement demand and commercial light-construction activity stabilize, the burden of proof sits with the next several quarters.
Bullish
- Forward PE of 14.6x is undemanding: At $341.97 the stock trades at 21.77x trailing but only 14.57x forward earnings, a 33% compression that puts it roughly in line with industrial-machinery peers in the mid-teens. Consensus EPS of about $29.30 versus the current run-rate implies the market is pricing meaningful earnings growth, and if estimates hold the multiple is inexpensive for a franchise with a 20.05% trailing operating margin.
- Valuation near multi-year band bottom: The PE has collapsed from 34.43x in Q1 2026 and 29.75x in Q4 2025 to 21.77x today, while price-to-sales has fallen from 14.23x to 3.26x. The stock is now near the bottom of its own multi-year valuation band on both earnings and sales, a classic setup where either genuine deterioration is priced in or a value opportunity is emerging.
- Still growing double digits with solid margins: Q3 2026 revenue of $1.5725 billion grew 10.21% year-over-year, and operating income of $312.1 million (19.85% margin) was essentially flat versus $310.2 million a year ago despite cost inflation. Trailing gross margin of 33.39% and net margin of 15.51% remain respectable for industrial machinery, so the de-rating reflects expectations rather than a broken business.
- Healthy free cash flow and FCF yield: Trailing free cash flow of $835.7 million against a roughly $16.95 billion market cap implies an FCF yield of about 4.9%, supportive for a company with a 1.02% dividend yield and 21.5% payout ratio. Q3 alone generated $362.1 million of FCF, funding $209.7 million of acquisitions and $150.7 million of buybacks.
Bearish
- Analyst sentiment is deteriorating, not bottoming: Coverage is 2 Buy, 15 Hold and 1 Sell with a recommendation mean of 2.94, and the $371.92 average target implies only +8.8% upside. Goldman Sachs downgraded to Neutral on October 14, Deutsche Bank to Hold on September 14, and Oppenheimer to Perform on October 29, with no upgrades in the recent record — a signal of deteriorating sentiment rather than a contrarian bottom.
- Margins are compressing at the edge: Q3 2026 gross margin slipped to 31.62% from 33.29% a year earlier and from 34.91% in Q2 2026, roughly 170bps of year-over-year compression. Net margin fell to 14.07% from 17.23%, and operating income was flat despite 10% higher revenue — clear evidence of cost inflation and negative price-cost spread.
- Pronounced, accelerating downtrend: The stock is down 30.35% over one year and 31.46% year-to-date, sitting only about 6.2% above its $322.00 52-week low and 41.8% below its $587.27 high. The 3-month change of -22.24% and 6-month change of -34.39% show the decline is accelerating, with a -41.94% max drawdown and no established support shelf beneath current prices.
- Heavy concentration in one end market: Residential Heating and Cooling at $937.2 million versus Commercial at $635.3 million leaves the company heavily levered to a single replacement-driven end market. The violent late-July de-rating (from $544.11 to $430.02 in one session) shows how quickly investors reprice when that single engine looks softer.
LII Technical Analysis
Lennox is in a pronounced, sustained downtrend. The stock is down 30.35% over the past year and 31.46% year-to-date, and at $341.97 it sits at roughly 37.7% of its 52-week range (low $322.00, high $587.27) — only about 6.2% above the 52-week low and 41.8% below the high. That positioning is characteristic of a falling knife rather than a value base: the stock has lost more than 40% from its peak (max drawdown -41.94%) and is pressing the bottom of its annual range, meaning there is no established support shelf beneath current prices other than the 52-week low itself.
Short-term momentum confirms rather than contradicts the longer-term deterioration. The 1-month change of -4.59% and 3-month change of -22.24% show the decline is accelerating, not decelerating — the 3-month loss is nearly five times the 1-month loss on an annualized basis, and the 6-month change of -34.39% is worse than the 1-year figure, indicating the bulk of the damage occurred in the last two quarters. Relative strength is deeply negative across every window (-39.94% vs. SPY over 1 year, -17.33% over 3 months, -33.85% over 6 months), and even the modest 1-month relative strength of +0.40% merely reflects the stock falling slightly less than a weak market (SPY -4.99% over 1 month) rather than any genuine reversal. Volume of roughly 472K shares on the latest session and a short ratio of 5.19 days suggest elevated but not extreme bearish positioning.
Key technical levels are unusually clean because the stock is near its range extreme. The $322.00 52-week low is the only meaningful support reference; a decisive break below it would signal a continuation of the downtrend into new-low territory with no historical floor, likely triggering further momentum-driven selling. Resistance sits at the $587.27 52-week high, but far more relevant near-term resistance is the $430-$450 zone where the July gap-down originated — reclaiming that area would be the first evidence of a trend change. With a beta of 1.202, Lennox is roughly 20% more volatile than the market, so position sizing should assume amplified drawdowns in a risk-off tape; combined with a -41.94% max drawdown, this is a high-risk profile for anyone attempting to catch the bottom.
Beta
1.20
1.20x market volatility
Max Drawdown
-41.9%
Largest decline past year
52-Week Range
$322-$587
Price range past year
Annual Return
-27.0%
Cumulative gain past year
| Period | LII Return | S&P 500 |
|---|---|---|
| 1m | -0.6% | -2.7% |
| 3m | -17.5% | -2.5% |
| 6m | -30.4% | +2.4% |
| 1y | -27.0% | +10.8% |
| ytd | -30.2% | +11.0% |
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LII Fundamental Analysis
The revenue trajectory is decelerating from a position of prior strength. Q3 2026 revenue of $1.5725 billion grew 10.21% year-over-year versus $1.4268 billion in Q3 2025, and the sequential path ($1.1351B in Q1, $1.5453B in Q2, $1.5725B in Q3) shows steady absolute expansion. However, the year-over-year comparison flatters the trend: Q3 2025 revenue of $1.4268 billion was itself down from Q2 2025's $1.5009 billion, and the segment mix — Residential Heating and Cooling at $937.2 million versus Commercial at $635.3 million — leaves the company heavily levered to a single replacement-driven end market. The market's violent reaction to the late-July report implies investors now expect the double-digit growth to fade, and consensus revenue of roughly $6.512 billion for the forward period implies only modest incremental growth off the current run-rate.
Profitability remains solid in absolute terms but is compressing at the margin. Q3 2026 net income was $221.2 million on a 14.07% net margin, down from $245.8 million and a 17.23% net margin in Q3 2025, while gross margin slipped to 31.62% from 33.29% a year earlier and from 34.91% in Q2 2026. Operating income of $312.1 million (19.85% operating margin) was roughly flat versus $310.2 million a year ago despite 10% higher revenue — clear evidence of cost inflation and negative mix/price-cost spread. The trailing gross margin of 33.39% and operating margin of 20.05% remain respectable for industrial machinery, but the direction of travel (gross margin down roughly 170bps year-over-year) is what has driven the de-rating.
Balance sheet and cash generation are adequate but not fortress-like. Debt-to-equity of 1.77x and a current ratio of 1.60 provide reasonable liquidity, and trailing free cash flow of $835.7 million against a $16.95 billion market cap implies an FCF yield of roughly 4.9% — supportive but not deep value. The caveat is cash flow volatility: quarterly FCF swung from -$39.4 million in Q1 2026 to $136.3 million in Q2 and $362.1 million in Q3, and the company funded $209.7 million of acquisitions plus $150.7 million of buybacks in Q3 alone, drawing on balance-sheet capacity. ROE of 69.3% is flattered by a thin equity base (equity multiplier above 3.5x), so it overstates underlying returns; ROA of 15.9% is the cleaner profitability gauge and remains healthy.
Quarterly Revenue
$1.6B
2026-09
Revenue YoY Growth
+10.2%
YoY Comparison
Gross Margin
31.6%
Latest Quarter
Free Cash Flow
$835700000.0B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is LII Overvalued?
Because Lennox is solidly profitable (Q3 net income of $221.2 million; trailing net margin 15.51%), the PE ratio is the appropriate primary metric. The stock trades at 21.77x trailing earnings but only 14.57x forward earnings — a 33% compression that implies the market expects earnings to grow meaningfully, consistent with consensus EPS of about $29.30 versus the current run-rate. That gap is the crux of the debate: if forward estimates hold, the stock is inexpensive; if estimates are cut, the forward multiple is illusory. The negative PEG ratio of -13.71 reflects a negative near-term growth input and should be disregarded as a signal.
On peer comparison, the picture is mixed rather than cheap across the board. The 21.77x trailing PE and 14.57x forward PE are not demanding for an HVAC franchise, but the price-to-book of 14.57x and price-to-sales of 3.26x sit well above what the historical record shows as normal for this name, and EV/EBITDA of 16.43x is a full multiple for a company with decelerating growth. The 1.02% dividend yield and 21.5% payout ratio are modest. Relative to a typical industrial-machinery peer set trading in the mid-teens on forward earnings, Lennox looks roughly in line to slightly cheap on earnings but expensive on book and sales — the premium is not obviously justified by current growth momentum, which is precisely why the market has been repricing it.
Historical context is the most striking part of the valuation case. Lennox's own PE history shows 13.80x in Q3 2026, 18.48x in Q2, 29.75x in Q4 2025 and 34.43x in Q1 2026, while price-to-sales has collapsed from 14.23x in Q1 2026 to 3.26x today and price-to-book from 15.33x in Q2 2026 to 14.57x. The stock is now near the bottom of its multi-year valuation band on both earnings and sales — a classic setup where either the market is pricing in genuine fundamental deterioration (margin compression, demand slowdown) or a value opportunity is emerging. Given the still-positive 10.21% revenue growth and 14% net margin, the compression looks more like a de-rating of expectations than a broken business, but the burden of proof is on the next several quarters.
PE
21.8x
Latest Quarter
vs. Historical
Mid-Range
5-Year PE Range 10x~41x
vs. Industry Avg
30.2x
Industry PE ~30.2x*
EV/EBITDA
16.4x
Enterprise Value Multiple
Investment Risk Disclosure
Financial and operational risks center on margin compression and concentration. Q3 2026 gross margin fell to 31.62% from 33.29% a year earlier, roughly 170bps of compression, and net margin dropped to 14.07% from 17.23%, while operating income of $312.1 million was flat despite 10.21% revenue growth. Residential Heating and Cooling at $937.2 million versus Commercial at $635.3 million means roughly 67% of sales hinge on a single replacement-driven end market, and quarterly FCF swung from -$39.4 million in Q1 2026 to $362.1 million in Q3. Debt-to-equity of 1.77x and a current ratio of 1.60 are adequate but not fortress-like, and the company drew on balance-sheet capacity for $209.7 million of acquisitions plus $150.7 million of buybacks in Q3 alone.
Market and competitive risks are dominated by valuation compression and relative weakness. The stock trades at 14.57x price-to-book and 3.26x price-to-sales, both well above historical norms for this name, and EV/EBITDA of 16.43x is a full multiple for decelerating growth — leaving room for further multiple contraction if estimates fall. With a beta of 1.202, Lennox is roughly 20% more volatile than the market, and relative strength is deeply negative across every window (-39.94% vs. SPY over one year, -17.33% over three months), meaning sector rotation and a risk-off tape amplify downside. The clustered downgrades — Goldman Sachs to Neutral on October 14, Deutsche Bank to Hold on September 14, Oppenheimer to Perform on October 29 — highlight emerging sentiment risk rather than a contrarian bottom.
In a worst-case scenario, continued residential replacement softness plus commercial light-construction deceleration would force consensus EPS of about $29.30 lower, collapsing the 14.57x forward multiple and triggering further downgrades. The stock would likely break its $322.00 52-week low, entering new-low territory with no historical floor and triggering momentum-driven selling; the analyst low target of $350.00 offers essentially no cushion at only 2.3% above the current price. From $341.97, a move to the 52-week low implies roughly -5.8%, and a break below it toward the -41.94% max-drawdown profile would imply a decline of about -42% from the peak, or roughly -35% from current levels in a full re-rating scenario.
FAQ
Ranked by severity, the first risk is earnings-estimate risk: the entire 14.57x forward valuation rests on consensus EPS of about $29.30, and with gross margin already down roughly 170bps year-over-year to 31.62% and operating income flat at $312.1 million despite 10.21% revenue growth, a cut toward the $28.61 low estimate would collapse the thesis. Second is demand concentration: Residential Heating and Cooling at $937.2 million versus Commercial at $635.3 million means about 67% of sales hinge on a single replacement-driven end market, and the late-July de-rating from $544.11 to $430.02 in one session shows how violently that exposure gets repriced. Third is technical and momentum risk: the stock is only 6.2% above its $322.00 52-week low with a -41.94% max drawdown, -39.94% one-year relative strength versus the S&P 500, and a beta of 1.202 that amplifies any risk-off tape. Fourth is balance-sheet and cash-flow volatility: debt-to-equity of 1.77x, a current ratio of 1.60, and quarterly FCF that swung from -$39.4 million in Q1 2026 to $362.1 million in Q3 while the company funded $209.7 million of acquisitions and $150.7 million of buybacks.
The 12-month forecast is split into three scenarios. The base case carries 55% probability with a $350-$400 range, assuming revenue growth decelerates to the low-to-mid single digits, gross margin stabilizes in the low 30s, and consensus EPS near $29.30 holds, leaving the stock anchored between the $350 low target and the $371.92 average target. The bear case at 25% probability targets $280-$322, driven by EPS cuts below $28.61, gross margin breaking under 31%, and a decisive break of the $322.00 52-week low into new-low territory. The bull case at 20% probability targets $450-$524, requiring gross margin recovery toward 33-35%, stabilizing replacement demand, and a re-rating toward the high-teens to low-20s forward multiple consistent with the $524 high target. The base case is most likely, and its key assumption is that the forward EPS estimate survives the current margin compression — the single variable that determines whether the cheap multiple is real.
The answer depends heavily on which metric you weight. On earnings the stock looks inexpensive: 21.77x trailing but only 14.57x forward, a 33% compression that is roughly in line with industrial-machinery peers in the mid-teens and near the bottom of Lennox's own multi-year band (the PE was 34.43x in Q1 2026 and 29.75x in Q4 2025). On book and sales it looks expensive: price-to-book of 14.57x and price-to-sales of 3.26x remain elevated versus the name's history, and EV/EBITDA of 16.43x is a full multiple for decelerating growth. The market is therefore pricing in meaningful forward earnings growth — consensus EPS of about $29.30 versus the current run-rate — while simultaneously discounting the durability of that growth, which is exactly why the multiple has collapsed. If estimates hold, the stock is modestly undervalued on forward earnings; if they are cut, the apparent discount disappears and the stock is fairly valued to expensive.
From a pure risk/reward standpoint the setup is balanced rather than compelling: at $341.97 the stock offers only about +8.8% upside to the $371.92 average analyst target, while the $350.00 low target sits just 2.3% above the current price, meaning there is essentially no downside cushion from the sell side. The offsetting attraction is valuation — 14.57x forward earnings against consensus EPS of about $29.30, a 4.9% FCF yield, and 10.21% revenue growth — which is why the consensus rating is a Hold (2 Buy / 15 Hold / 1 Sell) rather than a Sell. The biggest downside risk is that the forward EPS is cut, which would make the cheap multiple illusory and likely break the $322.00 52-week low, implying roughly -6% immediately and potentially -35% in a full re-rating scenario. It is a reasonable buy only for patient, valuation-disciplined investors who size positions for a beta of 1.202 and are willing to add on confirmation of margin stabilization above 33%; for momentum or near-term traders, the -22.24% three-month and -34.39% six-month declines argue against catching the knife.
Lennox is better suited to a long-term holding period of at least 12-18 months than to short-term trading. The business is a mature, replacement-driven HVAC franchise with 12,900 employees, a 1.02% dividend yield backed by a conservative 21.5% payout ratio, and a 4.9% FCF yield — characteristics that reward patience rather than trading. Short-term holders face an unfavorable tape: the stock is down 31.46% year-to-date, -22.24% over three months, and -34.39% over six months, with a beta of 1.202 and a -41.94% max drawdown that amplify volatility, and a 5.19-day short ratio that leaves it vulnerable to momentum-driven selling. Earnings visibility is currently low given three downgrades since September and no upgrades, so the prudent approach is to wait for confirmation — a Q4 print showing gross margin back above 33% with intact guidance — before building a full position. A staged entry over several quarters, sized for a 1.2-beta drawdown, is more appropriate than either a short-term trade or a single lump-sum commitment.