This is an old version of LII from 13 days ago (Oct 31, 2026).See the latest version
LII
- Price
- $344.08
- Discount category
- Well below intrinsic value
- Next earnings
- Jan 28, 2027
- Next earnings is estimate
- Yes
- Company name
- Lennox
- Sector
- HVAC equipment
- About
- Lennox makes heating, air conditioning, refrigeration and water heating equipment, mostly for North America. It has two segments. Home Comfort Solutions sells furnaces, air conditioners, heat pumps, thermostats, parts and supplies for homes, both directly to contractors through its own stores and through independent distributors. Building Climate Solutions sells rooftop units and other equipment for commercial buildings, refrigeration equipment for food stores and cold storage, and installation and service. Most home sales replace old systems that break, but new home construction is also a market. In Q2 2026, Home Comfort Solutions had $936 million of revenue and Building Climate Solutions had $610 million. Lennox also buys smaller companies, such as Duro Dyne and Supco in 2025 and Heat Controller in 2026, to sell more parts and products to distributors.
- Thesis
- The market prices Lennox for a long period of weak profit in home HVAC. Home Comfort Solutions revenue fell in Q4 2025, Q1 2026 and Q2 2026, because new home construction was weak and distributors bought less. In Q3 2026, home revenue grew 3%, but the segment margin fell 490 basis points to 18.7%. Lennox cut prices in some market segments to defend and recapture market share, and inflation and tariffs raised costs. It cut its 2026 adjusted EPS guidance twice, to $21.00 to $21.50 in October 2026. Investors fear that competition and costs keep home margins low, and that the commercial growth cannot offset it. For the gap to close, three things must be true. Home Comfort Solutions must recover its margin through better price pass-through, productivity and new entry-tier products, while it keeps or regains market share. Building Climate Solutions must keep its organic growth, which was 15% in Q3 2026, and its margin near 26%. Lennox must meet its new 2026 guidance of $21.00 to $21.50 of adjusted EPS and $700 million to $750 million of free cash flow. The Q4 report with the 2027 guidance in about late January 2027 is the next test, and the 2027 summer season shows whether home margins recover. If home margins recover, the gap can close over the next four to six quarters. If price competition continues through 2027, it can stay open longer.
- Risks
- Home HVAC sales fell for several quarters before a 3% rise in Q3 2026. Competitors put pressure on prices, and Lennox cut some prices to defend market share. If price competition and weak demand continue, Home Comfort Solutions, the larger segment, loses margin. Steel, aluminum and copper prices and tariffs change product costs. Lennox raised prices to offset them, and tariff refunds of $30 million helped profit in Q2 2026, which may not repeat. In Q3 2026, product cost inflation, including tariffs, and lower factory absorption cut segment profit by $45 million. Lennox grows by buying companies such as Duro Dyne, Supco and Heat Controller. If it does not integrate them well, the expected sales and profits may not come. HVAC sales depend on the weather. A cool summer lowers replacement demand for air conditioners.
- Balance sheet
- Cash: $46M Debt: $1.6B Net debt: $1.6B Interest cover: 18× Undrawn credit line: $545M, to May 2030 Debt due within 12 months: $774M Last debt due: 2028 Ratings: Moody's Baa1 (stable outlook), S&P BBB (stable outlook) Debt is the amount on the balance sheet at September 30, 2026: $455.1 million of commercial paper, $319.2 million of current maturities of long-term debt and $847.1 million of long-term debt. These amounts include finance leases. The 10-Q for the quarter is not filed yet, so this text assumes that the other debt did not change from June 30, 2026: $300 million of 1.70% notes due August 1, 2027, a $300 million term loan due October 16, 2027, and $500 million of 5.50% notes due September 2028. Due within 12 months is the commercial paper and the current maturities, mostly the 2027 notes. Debt is usually higher in the first half of the year because of seasonal working capital. Undrawn credit is the $1.0 billion revolving credit facility less the commercial paper, about $545 million, and the facility matures in May 2030. Interest cover is operating income divided by net interest expense for the first nine months of 2026. Free cash flow was $461 million in the first nine months of 2026, and Lennox expects $700 million to $750 million for 2026. In the first nine months, it bought back $301.9 million of shares and paid $209.9 million for acquisitions, mostly Heat Controller. As of Sep 30, 2026.
- Checkpoints
- Oct 28, 2026: Q3 2026 results: home HVAC volumes. Failed. Watch: A smaller fall or growth in Home Comfort Solutions revenue and a kept 2026 EPS range pass; another guidance cut fails. Outcome: Home Comfort Solutions revenue rose 3%, but Lennox cut its 2026 adjusted EPS guidance to $21.00 to $21.50 from $23.00 to $24.00. Jan 28, 2027 (estimate): Q4 2026 results and 2027 guidance. Pending. Watch: 2026 adjusted EPS of $21.00 to $21.50, free cash flow of $700 million to $750 million and 2027 guidance for higher home margins pass; guidance for another year of lower EPS fails. Jul 2027 (estimate): Q2 2027 results: home margin in the summer season. Pending. Watch: A higher Home Comfort Solutions segment margin than a year earlier passes; a further fall from price competition fails.
- Recent events
- Oct 28, 2026: Lennox reported Q3 2026 results. Revenue rose 10% to $1.6 billion, and adjusted diluted EPS fell 7% to $6.84. GAAP diluted EPS was $6.41. Home Comfort Solutions revenue rose 3%, but its segment margin fell 490 basis points to 18.7%, because of price cuts to defend market share, inflation and tariffs. Building Climate Solutions revenue rose 24%, with 15% organic growth. Lennox cut its 2026 adjusted EPS guidance to $21.00 to $21.50 from $23.00 to $24.00, its revenue growth guidance to about 6% and its free cash flow guidance to $700 million to $750 million. It bought back $151 million of shares in the quarter. Oct 8, 2026: Lennox said that it will report Q3 2026 results before the market opens on October 28, 2026. Jul 29, 2026: Lennox reported Q2 2026 results. Revenue rose 3% to $1.5 billion, and diluted EPS was flat at $7.72. Home Comfort Solutions revenue fell 7%, and Building Climate Solutions revenue rose 24%, with 15% organic growth. Lennox lowered its 2026 EPS guidance to $23.00 to $24.00 and kept its guidance for about 8% revenue growth and $750 million to $850 million of free cash flow. Jul 13, 2026: Lennox completed the purchase of Heat Controller, which sells the Comfort-Aire and Century brands to small and mid-size HVAC distributors in North America, for about $205 million. Lennox had signed the agreement on June 18, 2026. May 21, 2026: Lennox increased its quarterly dividend from $1.30 to $1.36 per share. Apr 29, 2026: Lennox reported Q1 2026 results. Revenue rose 6% to $1.1 billion, and diluted EPS fell 8% to $3.35. Home Comfort Solutions revenue fell 10%, a smaller fall than the 21% of Q4 2025, and Building Climate Solutions had 26% organic growth.