Lennox International Inc. LII
Verdict: Sell. Fair value $443 against a price of $504 on 6 Jan 2026, 12% below the price.
In plain words
The case for: Narrow competitive moat provides durability. Industry tailwinds with growing market.
The case against: Intense competitive pressure could compress margins. In 2022, Operating Cash Flow was only $0.30B against Net Income of $0.50B, resulting in a very low....
Main risks
- High leverage with a Debt/Equity ratio of 1.75, which magnifies returns (high ROE) but also increases financial risk.
- Recent TTM Free Cash Flow ($0.53B) and TTM Operating Cash Flow ($0.68B) are significantly lower than latest annual figures ($0.78B and $0.95B respectively), suggesting a potential slowdown in cash generation.
- The provided TTM EBIT proxy ($0.58B) appears low relative to latest annual Net Income ($0.81B), creating uncertainty in TTM-based profitability and return metrics like ROIC.
- In 2022, Operating Cash Flow was only $0.30B against Net Income of $0.50B, resulting in a very low...
- Intense competitive environment
- In 2022, Operating Cash Flow was only $0.30B against Net Income of $0.50B, resulting in a very low OCF/NI ratio of 0.61. This indicates significant non-cash earnings or a major strain on working capital during that period. While this has recovered strongly in 2023 (1.25) and 2024 (1.17), the 2022 performance represents a significant historical risk.