Investor enthusiasm for HVAC-R hasn’t really waned all that much, but Lennox (LII) isn’t participating like it was before. While Lennox is still outperforming the broader industrial space on a year-to-date basis, the shares have lagged both the industrial group and other HVAC-R players like Carrier (CARR), Daikin (OTCPK:DKILY), and Trane (TT) over the last three months and since my last update on the company.
There’s a bit of an interesting debate around the stock now, with sell-side analysts largely dismissing management’s arguments in favor of a “stronger for longer” residential HVAC cycle, just a few weeks after writing reports that included praising the CEO for his history of candid and balanced commentary (in the context of the announced CEO transition next year). Although I personally think the CEO’s commentary is more “bull-case” than “base-case”, I am in the odd position of being more bullish on the underlying fundamentals of the business but less bullish on the relative valuation.
In any case, I still find Lennox to be an expensive stock here. At best I can make an argument for a fair value in the $340’s, largely driven by the company’s above-average ROTA, and I think the long-term annualized returns from here are likely to be fairly pedestrian.
Read the full article here:
Lennox Pushing A Stronger-For-Longer Case In Residential HVAC
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