Lennox (LII) Stock May Be 41% Undervalued On Cash Flow
Lennox International has had a weak share price run over the past year, yet several valuation checks suggest the stock may now trade at a discount to its underlying cash flow potential and earnings power.
- The stock has fallen 30.7% over the past year, which leaves current holders and new investors asking whether the recent share price level already reflects the weaker sentiment.
- Future cash flow delivery and margin resilience can support the current valuation, while slower cash generation or pressure on profitability would weigh on what investors are willing to pay for Lennox International.
- The stock screens as broadly cheap, with a high value score of 6 out of 6 and a Discounted Cash Flow (DCF) intrinsic value estimate indicating the shares trade at about a 41.4% discount.
The issue now is whether the current price of Lennox International already reflects these risks or if the intrinsic value estimate points to material upside that the market has not priced in.
Compare Lennox International's recent share price pullback with other potential value opportunities by scanning 45 high quality undervalued stocks, which highlights companies that combine stronger fundamentals with discounted valuations.Does Lennox International Look Undervalued on Cash Flow?
The Discounted Cash Flow (DCF) approach estimates what Lennox International could be worth based on the cash it is expected to generate for shareholders. The latest twelve month free cash flow is about $713.3 million, and the model uses a growing cash flow profile that includes both analyst inputs and moderate longer term estimates.
On these assumptions, the DCF model points to an intrinsic value of about $653 per share. That is well above the current share price, which implies the stock trades at roughly a 41.4% discount to the cash flow estimate for Lennox International.
On balance, the DCF work suggests Lennox International currently appears undervalued relative to its projected cash flows.
Our Discounted Cash Flow (DCF) analysis suggests Lennox International is undervalued by 41.4%. Track this in your watchlist or portfolio, or discover 45 more high quality undervalued stocks.
Does Lennox International Look Undervalued on Earnings?
The P/E ratio is a useful cross check for Lennox International because earnings are a key driver of how investors typically value established industrial businesses.
Lennox International currently trades on a P/E of about 16.8x. This is below the Building industry average P/E of roughly 20.8x and also below the peer group average of about 37.0x. The gap indicates the stock is priced at a discount to both the wider industry and closer listed peers, even though the business operates in the same sector and reports positive earnings.
The modelled fair P/E ratio for Lennox International is about 26.7x, which is higher than the current market multiple. That indicates investors are paying less per dollar of earnings than the model suggests is reasonable given the company’s profile and risk characteristics.
On this P/E comparison, Lennox International stock appears undervalued relative to both its industry and its modelled fair earnings multiple.
See what the numbers say about this price — find out in our valuation breakdown.
The Lennox International Narrative: What Would Justify Today's Price?
To move from Lennox International's valuation puzzle to a clearer investment view, Simply Wall St Narratives set out the specific future paths for growth, margins and earnings that would need to hold for the stock to be worth materially more or less than today’s price on the Community page. Each narrative links its number to a concrete view of where growth, profitability and key risks go next, which you can revisit as new information comes through.
One of the top community narratives on Lennox International: 15% undervalued
"Emerging HVAC technologies and new entrants focused on breakthrough energy efficiency and electrification standards are likely to erode Lennox's traditional market share and compress pricing power..."
Read one of the top narratives on Lennox International
Do you think there's more to the story for Lennox International? Head over to our Community to see what others are saying!
The Bottom Line
Lennox International screens as undervalued on both Discounted Cash Flow (DCF) and P/E based comparisons, which gives the valuation case more weight than a single metric on its own. The key question is whether the company can sustain the cash generation and margin profile that sit behind the intrinsic value estimate and the higher fair P/E multiple. For you as an investor, the debate now is whether that discount reflects an opportunity or a fair pricing of risks around future cash flow delivery and profitability resilience.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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