Lennox International Inc (LII)

Conclusion

Lennox International designs, manufactures and sells heating, ventilation, air conditioning and refrigeration equipment in the United States, Canada and abroad, through its Home Comfort Solutions and Building Climate Solutions segments. On 2026-11-09 the share price was 349.47 USD, giving a market capitalisation of 11.95 billion USD and an enterprise value of 13.99 billion USD.

The verdict is undervalued. The P/E of 15.9 compares with a ten-year median of 26.0, EV/EBITDA of 12.1 with 18.2, and P/FCF of 14.3 with 29.3. The DCF gives 377.16 USD per share at a discount rate of 10.9%. The fair value band runs from 379.07 to 568.61 USD with a midpoint of 473.84 USD, a margin of safety of 35.6%. The reverse DCF implies growth of 5.2% a year, against revenue growth of 7.4% a year over five years and free cash flow per share growth of 5.6% a year. The fair value from historical multiples is 570.52 USD.

The strongest numbers are ROIC of 24.6% against a WACC of 9.9%, interest coverage of 16.2x and free cash flow conversion of 111.4% over the last twelve months. The weakest are next-year estimates, cut by 10.9% over 90 days with 15 downward revisions and one upward in the last 30 days, ROIC below its five-year median of 36.6%, and a Piotroski score of 5 out of 9.

Financial health

Financial strength is green, because the current ratio of 1.21, net debt to EBITDA of 1.77x, interest coverage of 16.2x and the Altman Z-score of 5.71 all pass. The quick ratio of 0.50 and debt to equity of 1.58 are weaker and leave less cushion if sales slow. The Altman Z-score of 5.71 sits in the safe zone, though that model was designed for manufacturers, and Lennox is one. Insolvency risk: low, about 1.2% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is yellow, held back by a Piotroski score of 5 out of 9. Free cash flow conversion is 111.4% on a trailing basis and 79.6% over five years. The accrual ratio is 1.3%, and stock-based compensation is 0.44% of revenue, leaving free cash flow after it at 812 million USD. The share count fell at a compound rate of 1.9% a year over five years, which points to buybacks. The Beneish M-score is not available. The company beat earnings estimates in six of the last eight quarters, with an average surprise of 6.0%, but estimates for the current and next year have been revised down.

Profitability

Profitability is green. The gross margin of 32.6% compares with a ten-year median of 29.0%, the operating margin of 18.9% with 14.0%, and the net margin of 13.8% with 10.6%. ROIC is 24.6% against a WACC of 9.9%, and the given ROIC minus WACC value is 14.8%. ROIC remains below its five-year median of 36.6%. The DuPont split shows a net margin of 15.5%, an asset turnover of 1.27 and an equity multiplier of 3.51 (2025 annual figures). The trailing return on equity of 56.9% therefore owes much of its height to leverage.

Growth

Growth is green. Revenue compounded at 3.3% over three years, 7.4% over five and 4.1% over ten. Earnings per share compounded at 18.3%, 20.0% and 18.8% over the same periods. Free cash flow per share compounded at 48.0% over three years, 5.6% over five and 12.3% over ten. Revenue grew in seven of the ten comparable years. The consensus next-year earnings growth is 9.3%, but that estimate has been revised down sharply over the past 90 days.

Valuation

Valuation is green. The P/E of 15.9 sits at a premium of -38.8% to its ten-year median of 26.0. EV/EBITDA of 12.1 is at a premium of -33.4% to 18.2, P/FCF of 14.3 at -51.2% to 29.3, and P/S of 2.19 at -14.9% to 2.58. P/B of 9.08 is at -83.1% to a median of 53.58, though that median rests on only five points. The DCF gives 377.16 USD per share at a discount rate of 10.9% and terminal growth of 2.5%. The fair value band of 379.07 to 568.61 USD is an order-of-magnitude estimate built on fixed assumptions, including a 5% equity risk premium and capped growth, and is not a price target. The dividend yield is 1.5%, the forward yield 1.6%, and the payout on free cash flow 21.9%.

Risks

Falling estimates are the main concern. If next-year earnings are cut further, the growth the price relies on becomes harder to reach. ROIC below its five-year median of 36.6% suggests returns are normalising. A quick ratio of 0.50 and debt to equity of 1.58 leave less room if demand weakens. A Piotroski score of 5 out of 9 offers only a middling picture of financial quality. Values not available include the Beneish M-score. This analysis has no debt maturity schedule and no revenue split by segment, and its fair value depends on fixed model assumptions.