$310.00
$694.00
bear $310.00
base $518.00
bull $694.00
margin of safety $260.00
market price* $357.73
Lennox International makes residential and light-commercial heating, air-conditioning and ventilation equipment, sold almost entirely in the United States and Canada. Home Comfort Solutions (furnaces, air conditioners, heat pumps under the Lennox, Armstrong Air, Ducane, Concord and other brands) sells through independent dealers and a network of company-owned Lennox stores. Building Climate Solutions sells commercial rooftop units, VRF systems, Heatcraft refrigeration equipment, and light-commercial service through AES, acquired in October 2023. Much of demand in both segments is replacement of worn-out equipment, which makes the business steadier than new construction but still cyclical: replacements can be postponed and repaired, and pricing tracks the industry cycle. How we measured earnings. We start from cash generated by operations, strip out the swings in inventory, receivables and payables, charge stock compensation as a real cost, and deduct the capital spending needed to keep the existing business running. On that basis, owner earnings per share rose from $5.33 in 2016 to $11.05 in 2019, $12.89 in 2022, $20.29 in 2024 and $23.22 in 2025. Before interest, the business generated about $21.55 a share in 2024 and $24.53 in 2025. Part of that rise is real and lasting: share count fell from 44 million to about 35 million through buybacks, and the federal refrigerant change on January 1, 2025 (to lower-global-warming-potential refrigerants) carried a price and mix step-up of about 9% in 2025. Part of it is not: customers pulled purchases of older equipment into 2024 ahead of that deadline, and residential volumes then fell 13% in 2025. We set the normal earning level at about $22.60 a share before interest, between the pull-forward-inflated 2024 and the price-boosted, volume-depressed 2025. We did not use years before 2023, because a business was divested and AES was bought that year and the refrigerant reset changed pricing. 2023 itself is understated because spending on a new commercial-equipment factory is counted in full as ongoing capital spending. Owner earnings grew about 14% in 2025. Our base case's first year is roughly 5% below 2025, because the first quarter of 2026 showed lower net income ($117 million vs. $130 million) despite higher sales from the October 2025 Duro Dyne and Supco acquisitions ($545 million). We have not credited those acquisitions with any earnings beyond what the normal level already implies. Debt. At December 31, 2025 Lennox owed $1.39 billion: $226 million of commercial paper, a $300 million term loan due October 2027, $300 million of 1.70% notes due August 2027, $500 million of 5.50% notes due September 2028, and about $69 million of finance leases. Cash was $34 million, so net debt is about $1.35 billion, or roughly $39 a share. The debt is rated investment grade (Baa1 and BBB, stable) and is about 1.6 years of pre-interest cash flow, so refinancing the 2027-2028 maturities is not a material risk. The low-coupon 2027 notes are too short-lived to change the value meaningfully. Base case ($518 a share). Earnings start at about $23.30 a share before interest and grow 3% a year for ten years, then 2% a year to year 30, then hold flat. The growth credited comes from two mechanisms Lennox has run for a decade: price increases passed through the dealer channel (sales grew about 4% a year from 2016 to 2025 through the 2020 shutdown) and buybacks funded from its own cash that reduced the share count by about 2.4% a year. After year 30 we credit only the replacement of the installed base. We did not credit data-center cooling, share gains, or margin expansion. Business value is about $557 a share, less about $39 of net debt, leaving $518. Bear case ($310 a share). Residential HVAC goes through a downturn like 2008-2010, when Lennox's sales fell by about a fifth to a quarter and earnings by more than half. Pre-interest earnings fall from about $21 to a trough of about $11.50 a share in year 3 as volumes drop and part of the refrigerant-transition pricing is competed away. Tariffs on Mexican-made components, a risk the company names in its filing, add to cost pressure. Earnings recover only to about $20 by year 10, still below today, and grow 1.5% a year after that. Even at the trough, pre-interest cash flow of about $400 million covers about $60 million of interest more than six times, so lenders are not a threat. Business value is about $349 a share, less $39 of debt, leaving $310. Bull case ($694 a share). The 2025 pricing holds, volumes return to normal, and the Duro Dyne, Supco and AES businesses add to earnings. That starts earnings at about $25.40 a share, growing 5% a year for ten years (below the per-share rate actually achieved over 2016-2025) and 2.5% a year after. Business value is about $732 a share, less $39 of debt, leaving $694. Since our previous analysis. Since then, the first quarter of 2026 showed earnings still adjusting after the pull-forward, and borrowing for the Duro Dyne and Supco purchase is now fully reflected. The earlier figures were built on a different basis and are not directly comparable. Margin-of-safety price. We are fairly confident in the earning level: pricing on the new-refrigerant equipment is locked in by regulation across the industry, and the company earned more than our normal level in both 2024 and 2025. We are less confident about how much of the 2025 price step will hold if volumes stay weak, since we have only two years since the transition. The worst plausible event is a deep housing and replacement recession on top of a price war among Carrier, Trane, Daikin and Lennox. Lennox's balance sheet would survive it: debt is modest, no customer is concentrated, and its plants and dealer network are hard assets that take decades to replicate. If normal earnings are really about $18 a share rather than $22.60, the shares are worth about $400; if there is no growth at all from today's level, about $340. The price assumes a three-to-five-year holding period. Meanwhile Lennox pays a dividend of about $5 a share and keeps shrinking its share count. From $260, a move toward the base value over four years, plus dividends, implies about a 20% annual return. That price is also below the bear-case value, so in the bear case a housing downturn would delay the return rather than permanently impair it. The margin-of-safety price is $260.