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On Thursday, RBC Capital Markets adjusted their outlook on Lennox International (NYSE:LII), a global provider of climate control solutions. Analyst Deane Dray at RBC Capital increased the price target for Lennox International to $642 from the previous target of $617, while maintaining a Sector Perform rating on the stock. According to InvestingPro analysis, Lennox currently trades above its Fair Value, with a P/E ratio of 29.4 and strong financial health metrics earning an overall score of "GREAT."
Lennox International recently reported fourth-quarter earnings that significantly surpassed expectations, attributed largely to a new refrigerant prebuy that contributed an additional $125 million in revenues and $1.00 in earnings per share (EPS). This prebuy accounted for a significant portion of the quarter’s success, resulting in a 97 cents, or 22%, operating beat compared to RBC Capital’s estimates. The company’s strong performance is reflected in its impressive last twelve months diluted EPS of $22.54 and revenue growth of 7.21%.
Despite the strong fourth-quarter performance, Lennox’s stock experienced a decline of approximately 9%. This downturn was linked to a 2025 guidance that fell short of consensus expectations by 2%. The guidance suggested that 5% of core revenues expected in 2025 were instead realized in the fourth quarter of 2024 due to the prebuy. InvestingPro data shows that 9 analysts have revised their earnings downward for the upcoming period, with the 2025 EPS forecast now standing at $21.31.
Dray commented on the market’s reaction to the 2025 guidance, suggesting that the drop in share price might be an overreaction considering the robust earnings quality and strong free cash flow (FCF) demonstrated in the fourth quarter. He also noted that Lennox management tends to set conservative targets that are achievable, indicating confidence in the company’s future performance.
In conclusion, RBC Capital’s stance on Lennox International remains unchanged at Sector Perform, signaling that the risk/reward profile of the company’s stock is balanced. This assessment follows the company’s notable fourth-quarter earnings beat and the subsequent conservative guidance for 2025.
In other recent news, Lennox International reported fourth-quarter results that exceeded expectations, with adjusted earnings per share of $5.60 and revenue of $1.3 billion. The company’s core revenue grew 22% year-over-year to $1.3 billion in Q4, and the adjusted segment profit rose 41% to $248 million. For the full year 2024, Lennox reported a 13% increase in revenue for core operations, totaling $5.3 billion, and a 26% rise in adjusted earnings per share to $22.58.
However, the company provided a cautious outlook for 2025, forecasting adjusted earnings per share in the range of $22.00 to $23.50. Oppenheimer maintained a Perform rating for Lennox International, while Morgan Stanley (NYSE:MS) has adjusted its price target for Lennox International from $595 to $585, maintaining an Underweight rating on the stock.
Despite the company’s robust performance, the forecast for fiscal year 2025 presented midpoints that were slightly below market predictions. Lennox International’s strategic initiatives aimed at driving growth through pricing strategies and distribution excellence were highlighted as key factors in maintaining the Perform rating. These recent developments offer insights into Lennox International’s performance and future projections.
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