Lennox Stock Overdue for Fresh Round of Bull Notes

The deadline to receive LII dividend is approaching

Mar 30, 2021 at 11:54 AM
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Lennox International Inc. (NYSE:LII) designs and manufactures products for the heating, ventilation, air conditioning, and refrigeration markets. The company provides energy-efficient climate-control solutions for residential and commercial customers by reducing their carbon footprint. This afternoon, LII is trading down 0.5% at $314.79.

Lennox stock is up nearly 90% year-over-year, and is notably higher than its April 2020, three-year bottom of $168.41. In addition, LII has already increased 20% year-to-date and just yesterday reached a record high of $321.70.

Early Monday morning the equity landed two price-target hikes from Morgan Stanley and Stephens to $258 and $315, respectively. More upgrades and/or price-target hikes look well overdue, with 13 of the 14 covering brokerages sporting a "hold" or worse recommendation heading into today.

On March 12, the company declared a quarterly cash dividend of $0.77 per share. The dividend is payable on April 15, to stockholders of record as of March 31. As of today, the company has a forward dividend of $3.08 and a dividend yield of 0.96%.

Lennox is due to report earnings on April 19. Lennox, in recent history, has beat earnings expectations on three of its last four earnings reports. For the first quarter of  2020, Lennox missed analyst estimates by a margin of $0.53 and reported an earnings per share (EPS) of $0.56. For the second quarter of 2020, LII increased its EPS to $2.97 and beat expectations by a margin of $0.34. For the third quarter of 2020, Lennox posted another increase in earnings, rising to $3.53 per share. The company also beat estimates by a margin of $0.38. In the most recent quarterly report, Lennox reported an EPS of $2.89 and beat expectations by $0.24.

From a fundamental point of view, Lennox stock doesn’t offer the most attractive risk-reward ratio. Specifically, the potential reward is not great now that LII stock price is hitting new all-time highs. Lennox stock currently trades at an inflated price-earning ratio of 34.73 and things are not expected to get much better with its forward price-earnings ratio resting at 28.90. On the flipside, the risk of investing in Lennox is also high due to the $1.18 billion in total debt it owes, which heavily outweighs its $129 million cash total.

Lennox has struggled to grow its revenues and net income in recent years, and the pandemic has only worsened the numbers. In fiscal 2020 the company’s revenues fell over $160 million or 5%. Lennox's net income also decreased by more than $50 million or 13%. Overall, Lennox stock does not currently offer enough incentive for investors to jump on board when considering its current valuation and dividend yield.

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