Lennox International Inc.LIINYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $531.34 per share(market-calibrated)

-5.7%

Upside to Fair Value

Current

$563.40

Pure Model

$524.45

Fair Value

$531.34

Bull Case

$628.60

Bear Case

$425.27

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

4.40%

Calibrated Growth

2.57%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $524.45.

What's Driving This Ratingfor LII

✓

CapEx already efficient

CapEx at 2.85% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 27.09% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 5.65% revenue growth, fading to 2.25% by Year 10. Revenue reaches $7.0B (vs $5.2B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $435.54/share (15.0x terminal FCF) while exit multiple gives $613.35/share (25.2x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $563.40, the market implies 4.40% perpetual growth — 215bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 71.32% indicates efficient cash generation. FCF reaches $1.4B by Year 10 (20.54% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.19

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.85%

Cost of Debt

Pre-tax Cost of Debt2.00%

Tax Rate19.02%

After-tax Cost of Debt1.62%

Equity Weight (E/V)90.50%

Debt Weight (D/V)9.50%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (90.50% × 9.85%) + (9.50% × 1.62%)

= 9.06%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$5.5B	$6.0B	$6.3B	$6.6B	$7.0B
EBIT	$1.5B	$1.6B	$1.7B	$1.8B	$1.9B
Tax	$283M	$310M	$324M	$339M	$362M
NOPAT	$1.2B	$1.3B	$1.4B	$1.4B	$1.5B
+ Depreciation	$94M	$103M	$107M	$112M	$120M
- Capex	$156M	$172M	$179M	$187M	$200M
- Δ NWC	$34M	$29M	$16M	$17M	$18M
Free Cash Flow	$1.1B	$1.2B	$1.3B	$1.4B	$1.4B
Discount Factor	0.917	0.771	0.648	0.545	0.420
Present Value	$1.0B	$942M	$837M	$736M	$606M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.4B

Terminal Growth Rate2.25%

WACC9.06%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$21.7B

PV of Terminal Value$9.1B

Exit Multiple Method

Year 10 EBITDA$2.0B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$36.4B

PV of Terminal Value$15.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$8.1B

PV of Terminal Value$9.1B

Enterprise Value$17.2B

(-) Net Debt$2.0B

Equity Value$15.2B

Shares Outstanding35M

Price per Share$435.54

Exit Multiple Method

PV of Projected FCFs$8.1B

PV of Terminal Value$15.3B

Enterprise Value$23.4B

(-) Net Debt$2.0B

Equity Value$21.4B

Shares Outstanding35M

Price per Share$613.35

Pure Model Fair Value

$524.45

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
7.06%	$643.74	$661.85	$683.72	$710.65	$744.65
8.06%	$567.89	$579.85	$593.87	$610.52	$630.64
9.06%	$506.66	$514.94	$524.45	$535.45	$548.36
10.06%	$455.70	$461.65	$468.36	$476.00	$484.75
11.06%	$412.36	$416.76	$421.66	$427.15	$433.34

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$425.27

-24.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.48

Base Case

$524.45

-6.9% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.19

Bull Case

$628.60

11.6% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.01

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth5.65%

Year 3 Revenue Growth4.39%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin27.09%

Tax Rate19.02%

Historical Capex / Rev2.85%

NWC / Revenue11.60%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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