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Wednesday, Barclays (LON:BARC) analyst Julian Mitchell upgraded Lennox International (NYSE:LII) stock rating from Equal Weight to Overweight and increased the price target to $702 from the previous $665. The adjustment comes as a result of higher Free Cash Flow (FCF) assumptions for the medium term and a higher target multiple, reflecting reduced concerns about the Residential Heating, Ventilation, and Air Conditioning (RHVAC) pre-buy headwind. According to InvestingPro data, the company maintains a GREAT financial health score, with strong cash flows that sufficiently cover interest payments.
Mitchell’s analysis suggests that Lennox International remains an undervalued stock, particularly among short-term investors. He points out that Lennox International currently has the second-highest short interest ratio within the analyst’s coverage universe. Furthermore, the stock’s Buy rating among sell-side analysts sits at 19%, which is significantly lower compared to the average Machinery Industry (MI) company’s Buy rating of 55%. Trading at a P/E ratio of 27.65 with a favorable PEG ratio of 0.75, the stock shows attractive valuation metrics relative to its growth potential.
Year-to-date, Lennox International’s stock performance has been slightly weaker than that of the S&P index. Mitchell’s commentary indicates that despite this underperformance, there are now factors in play that could lead to a more favorable outlook for the company’s stock.
The upgrade and price target change by Barclays reflect a shift in the market’s perception of Lennox International’s future financial performance. The new price target of $702 represents Mitchell’s confidence in the company’s ability to generate higher free cash flow in the coming years and his belief that the stock deserves a higher valuation multiple. InvestingPro analysis indicates that the stock is currently trading near its Fair Value, with analyst targets ranging from $404 to $750. Discover 13 additional exclusive ProTips and comprehensive financial analysis in the Pro Research Report, available on InvestingPro.
Investors and market watchers will be paying close attention to how Lennox International’s stock responds to this updated analyst perspective in the coming trading sessions, with the next earnings report expected on April 28, 2025.
In other recent news, Lennox International Inc. reported strong financial results for the fourth quarter of 2024, exceeding both earnings and revenue expectations. The company posted an earnings per share (EPS) of $5.60, surpassing the anticipated $4.15, and achieved revenue of $1.3 billion, which exceeded the forecasted $1.23 billion. Despite these positive figures, Lennox’s stock experienced a decline in aftermarket trading. The company also reported record annual revenue exceeding $5 billion for the first time and anticipates a core revenue growth of approximately 2% in 2025.
Additionally, Lennox is targeting a revenue range of $5.4 to $6 billion by 2026, with a projected free cash flow between $650 and $800 million. Analyst firms noted the company’s performance, with some highlighting the impact of strategic pricing and distribution efficiencies. Lennox’s CEO, Alok Musgara, emphasized the company’s focus on North American growth markets and its strategic partnership with Samsung (KS:005930). These developments underscore Lennox’s confidence in its strategic direction and market opportunities.
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