Lennox’s Commercial Recovery Is Underway, but We See a Residential Pullback in 2023

Lennox International closed out its fiscal 2022 with a strong fourth-quarter performance. The narrow-moat-rated heating, ventilation, air-conditioning, and refrigeration manufacturer reported 13% year-over-year revenue growth (to approximately $1.1 billion), segment operating margin expanded 150 basis points (to 12.1%), and adjusted EPS grew 12% (to $2.63). After reviewing the firm’s outlook and rolling our valuation model forward, we’ve raised our fair value estimate 5% to $260 per share, primarily due to our modestly more optimistic near-term outlook and the time value of money since our last update.