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On Thursday, Oppenheimer analyst Noah Kaye upgraded Lennox International (NYSE:LII) stock rating to Outperform from Perform and set a new price target of $600. The upgrade follows a decline in Lennox’s share price after the company’s earnings report on Wednesday, which Kaye sees as an opportunity for investors. The stock has indeed taken a significant hit, down 8.5% over the past week and nearly 18% over the last six months. According to InvestingPro data, Lennox maintains strong fundamentals with a market capitalization of $18 billion and healthy revenue growth of 7.8% over the last twelve months.
Lennox’s stock reaction was primarily due to concerns over Building Comfort Solutions (BCS) margin weakness and adjusted financial guidance for fiscal year 2025. However, Kaye believes these issues are temporary, attributing the margin weakness to factors such as the refrigerant transition, the Saltillo factory ramp-up, and Last-In, First-Out (LIFO) accounting practices. InvestingPro analysis shows the company maintains strong financial health with liquid assets exceeding short-term obligations and operates with moderate debt levels. The company has also demonstrated commitment to shareholder returns, maintaining dividend payments for 27 consecutive years.
Kaye’s analysis suggests that the adjusted FY25 guidance is conservative, especially regarding volume expectations. He views the recent quarter as a temporary setback in what is otherwise an appealing multi-year growth narrative for Lennox.
Looking ahead, Kaye anticipates that Lennox’s BCS segment will overcome factory ramp inefficiencies and seize market share gain opportunities in FY26. The Home Comfort Solutions (HCS) division is expected to recover from new home construction and pre-buy volume headwinds. Additionally, HCS is likely to benefit from price and mix rollover and capitalize on current investments in distribution, selling, and technology.
In summary, Oppenheimer’s upgrade to Outperform reflects a positive outlook on Lennox’s ability to navigate short-term challenges and leverage growth opportunities in the coming fiscal years. The new price target of $600 indicates confidence in the company’s future performance.
In other recent news, Lennox International Inc. reported its Q1 2025 earnings, surpassing Wall Street expectations with an adjusted EPS of $3.37, exceeding the forecasted $3.20. The company also achieved a 2% year-over-year revenue growth, reaching $1.1 billion. Despite these positive financial results, the company’s segment margin decreased by 140 basis points to 14.5%. Lennox has narrowed its full-year EPS guidance to a range of $22.25 to $23.50, reflecting its confidence in continued growth. The company is planning two price increases to offset anticipated cost inflation of 9%. Analysts from William Blair and other firms have been closely monitoring Lennox’s performance, noting challenges related to transitioning to new refrigerants and tariff impacts. The company has also been actively pursuing strategies to mitigate tariff impacts, including production shifts and leveraging more US-based components. These recent developments underscore Lennox’s efforts to navigate economic uncertainties while maintaining its financial performance.
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