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Why You Should Add Lennox (LII) to Your Portfolio Right Now

Zacks Equity Research

Lennox International Inc.’s LII shares have rallied 11.8% in the past three months against 3.1% decline of the industry it belongs to. Also, the company has outperformed the industry in each of the 4-week, 12-week and 52-week time frames. Lennox, a global leader in heating, air conditioning, and refrigeration markets, has been riding high on new investments for expansion, research and development, as well as buoyant marketing programs.

Meanwhile, earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on Lennox are moving in the right direction. Notably, earnings estimates for the to-be-reported quarter as well as 2018 have increased 2.7% and 1%, respectively, over the past 30 days. Earnings estimates for 2019 have also increased 1.3% over the same time frame.

This positive trend justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Let’s delve deeper into other factors that make this stock a solid pick now.

Solid Growth Potential: Destruction caused by tornado at the company’s manufacturing facility in Marshalltown, IA in July 2018 has impacted its near-term results. Nonetheless, underlying demand fundamentals in the company’s core residential and commercial HVAC markets, and pricing power remain strong. Again, new investments for the expansion of distribution footprint, research and development projects, as well as recent marketing programs are expected to be conducive to the company’s top line. We believe that improving replacement, solid residential construction (primarily new constructions) and equipment sales will continue to drive growth.

Lennox has solid growth prospects, as is evident from the Zacks Consensus Estimate for 2019 earnings of $12.37 per share, which are expected to grow 31.3% year over year. Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A.

Lennox has a three-five year expected EPS growth rate of 19.2%.

Upbeat View: Recently, Lennox revised its full-year 2018 guidance and issued the same for 2019, reflecting the earlier receipt of insurance proceeds than the prior expectation. For the full year of 2018, Lennox expects adjusted EPS from continuing operations in the range of $9.21-$9.61, which was previously expected within $8.70-$9.10. On a GAAP basis, the company now expects EPS within $8.95-$9.35 versus $8.11-$8.51 projected earlier.

For 2019, the company expects adjusted EPS from continuing operations in the range of $12.00-$12.60. GAAP EPS is anticipated within $14.30-$14.90.

VGM Score: Lennox has a VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B, when combined with a Zacks Rank #1 or 2, make solid investment choices.

Other Stocks to Consider

Other top-ranked stocks in the Construction sector include Armstrong Flooring, Inc. AFI, Gates Industrial Corporation PLC GTES and Great Lakes Dredge & Dock Corporation GLDD, each carrying a Zacks Rank #2.

Armstrong Flooring surpassed earnings estimates in three of the trailing four quarters, resulting in average positive surprise of 38.9%.    

Gates Industrial and Great Lakes’ 2019 earnings are expected to grow 9.7% and 1,400%, respectively.

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