Mizuho Securities has maintained its Outperform rating on Lennox International (NYSE: NYSE:LII) and increased the stock's price target to $675 from $650.
The adjustment follows the company's third-quarter results, which surpassed expectations due to effective execution and some market share gains.
Lennox International reported a limited amount of pre-buy activity during the third quarter but observed some normalization in distributor inventory levels, which have grown more than 30%. Additionally, inventory at company-owned contractors rose at a low single-digit rate.
The company is progressing with its new R454-B pricing initiatives and anticipates a price increase of over 10%.
Lennox International is also strategically building its R-410A inventory due to product scarcity, with expectations that pricing for this older product will be more favorable next year compared to this year.
Furthermore, the company sees a significant opportunity for growth in its large Commercial Heating, Ventilation, and Air Conditioning (CHVAC) segment, with its Saltillo factory currently operating at around 20% capacity.
Lennox International has identified the emergency market recapture as a potential upside lever. The firm has revised its earnings per share (EPS) estimates for Lennox International, raising the 2024 forecast to $20.90 from $20.00 and the 2025 forecast to $23.20 from $21.90.
In other recent news, Lennox International reported impressive earnings and revenue in the third quarter of 2024, prompting an upward revision of its full-year guidance. The company's core revenue rose by 15%, reaching approximately $1.5 billion, while adjusted earnings per share surged by 24% to $6.68.
Operating cash flow also marked a 44% year-over-year increase to $452 million. RBC Capital responded to these strong results by maintaining its Sector Perform rating on Lennox and raising the stock's price target.
The company's Home Comfort Solutions and Building Climate Solutions sectors both experienced 15% revenue growth. Lennox also increased its earnings per share guidance for 2024 from $19.50-$20.25 to $20.75-$21, and boosted its free cash flow guidance to a range of $575-$650 million.
The company anticipates that its transition to low GWP refrigerants and operational efficiencies will drive revenue growth in 2025, despite potential challenges such as manufacturing capacity limitations and pressures from investments and rising costs affecting margins.
In other developments, Lennox's strategic moves, such as capacity expansion and a focus on emergency replacement services, are creating additional commercial opportunities. According to RBC Capital, these developments could offer incremental benefits to the company's commercial segment. The company also expects that by 2025, the newer R-454B systems, which command a 10% pricing premium, will account for two-thirds of market demand.
InvestingPro Insights
Lennox International's strong performance, as highlighted in the article, is further supported by InvestingPro data and tips. The company's market cap stands at $21.18 billion, reflecting its significant presence in the HVAC industry. InvestingPro Tips reveal that Lennox has raised its dividend for 14 consecutive years and maintained dividend payments for 26 years, demonstrating a commitment to shareholder returns that aligns with its robust financial performance.
The company's revenue growth of 4.68% over the last twelve months and a quarterly growth of 9.65% in Q3 2024 underscore the market share gains and effective execution mentioned in the article. Additionally, the operating income margin of 18.5% suggests efficient operations, supporting the company's ability to navigate pricing initiatives and inventory management strategies discussed.
InvestingPro Tips also indicate that Lennox operates with a moderate level of debt and that its cash flows can sufficiently cover interest payments. This financial stability positions the company well for its planned capacity expansion at the Saltillo factory and potential market recapture opportunities.
For investors seeking more comprehensive analysis, InvestingPro offers 16 additional tips for Lennox International, providing deeper insights into the company's financial health and market position.
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