Lennox International’s shares hit a fresh high on Monday after the Richardson-based heating, ventilation, air conditioning and refrigeration company reported better-than-expected earnings and revenue in the first quarter.
The provider of climate-control solutions said its revenue rose 29% to first-quarter record $931 million, led by 37% residential growth. The company said its adjusted EPS from continuing operations up 305% to first-quarter record $2.27, beating Wall Street’s consensus estimates of $1.29 per share.
Lennox raised 2021 guidance for revenue growth from 4-8% to 7-11% and adjusted EPS from continuing operations from $10.55-$11.15 to $11.40-$12.00.
Following this, Lennox shares hit a fresh high of $348.25 but closed 0.59% lower at $332.49 on Monday.
“The mixed outlook for the rest of 2021 is likely conservative, but the sheer size of the beat in 1Q, industry inventory position, and replacement cycle backdrop suggest demand has a hard time improving from here. Consumers still only act on unit failure, which is not accelerating. Remain Underweight,” noted Joshua Pokrzywinski, equity analyst at Morgan Stanley.
“We are raising our price target to $280 as we roll EPS forward and mark the multiple to market. Our 2021e EPS is now $12.00, at the high end of the guidance range, due to the likelihood for a strong 2Q and easy set up for the back half of the year. Our 2022/2023e EPS is now $12.47/$13.00 based on L-MSD declines in Resi due to tough comps and a declining replacement cycle, offset by HSD growth in Commercial driven by a need for IAQ and a focus around HVAC and energy efficiency under the current administration. Our $280 price target is made up of a SOTP of ~28x Commercial HVAC/Controls EPS and 20x “Other” EPS for a ~22.2x blended multiple on $12.60 in NTM EPS (2Q22-1Q23). This implies a 15% discount to peers, at the low end of LII’s trading range.”
Lennox Stock Price Forecast
Seven analysts who offered stock ratings for Lennox in the last three months forecast the average price in 12 months of $301.86 with a high forecast of $325.00 and a low forecast of $258.00.
The average price target represents a -9.21% decrease from the last price of $332.49. Of those seven analysts, none rated “Buy”, five rated “Hold” while two rated “Sell”, according to Tipranks.
Morgan Stanley raised the base target price of $280 from $258 with a high of $375 under a bull scenario and $194 under the worst-case scenario. The firm gave an “Underweight” rating on the company’s stock.
Several other analysts have also updated their stock outlook. CFRA raised the target price to $303. Credit Suisse lifted the stock price forecast to $308 from $286. Cowen and company increased the price objective to $325 from $275.
Lennox International had its price target boosted by Deutsche Bank to $310 from $307. The brokerage currently has a “hold” rating on the construction company’s stock. Barclays boosted their price objective to $315 from $300 and gave the company an “equal weight” rating.
“We see a favorable demand backdrop for this business, which we think can support at least mid-single-digit growth over the next few years. Over the short term, the business should benefit from spending tied to planned replacement projects that were deferred during the pandemic,” noted Brian Bernard, CFA, sector director at Morningstar.
“We see heightened focus on air quality and energy efficiency as a longer-term secular opportunity for the commercial business. We expect to raise our fair value estimate by less than 5% primarily due to our stronger near-term growth projections and the time value of money since our last update.”
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