Lennox's Impressive ROIC Amidst WFH Trends: Analyst Weighs In On Exposure Concerns

RBC Capital Markets analyst Deane Dray initiated coverage on Lennox International Inc LII at Sector Perform rating with a price target of $391.

The analyst notes Lennox has benefited from secular Indoor Air Quality and WFH trends, and its ROIC of 35% is the best in class.

However, the analyst sees LII’s outsized 70% exposure to the residential market as a matter of concern, given higher interest rates and the weakening macroeconomic market. 

Also, Dray notes that the company is struggling with labor shortages, supply chain disruptions, and inflation, which is pressurizing Commercial business margins.

The analyst estimates revenue and adjusted EPS of $4.91 billion and $16.45 in FY23 and $5.15 billion and $17.75 for FY24, respectively.

Last month, LII reported Q2 adjusted EPS of $6.15, beating the consensus of $5.19 and sales of $1.41 billion exceeding the $1.37 billion estimate.

Price Action: LII shares are trading lower by 2.28% at $358.58 on the last check Thursday.