In my last post, I talked about how I enjoy investing but don’t want to spend a lot of time researching and watching the stock market. I like to invest in stocks that I can buy and let ride for a while, knowing they are solid companies that will grow. And pay me a dividend too! This is where Lennox comes into play.
Lennox (NYSE: LII) is in the air conditioning business and as a result, doesn’t get much press or fanfare. But this is a solid stock and one that you should be looking into if you want to be a successful investor.
Let’s take a deeper dive into Lennox and see what this company is all about.
Who Is Lennox?
Lennox manufactures heating, refrigeration, ventilation, and air conditioning equipment for residential, commercial and industrial clients. They have a nice percentage of earnings from each of these categories, as seen below.
- Residential Clients: 55%
- Commercial Clients: 25%
- Refrigeration Clients: 20%
You might be wondering what refrigeration clients are. I was a little confused about this myself, but upon further research, I realized that this segment primarily works with grocery stores. Lennox provides the cooling in the freezer cases at many of the grocery stores in the country.
Ask anyone in the heating, ventilation and air conditioning (HVAC) industry about Lennox and you will get the same answer. The company makes high quality products that last. When you have a reputation for good quality items, chances are you will be a successful company.
The earnings for Lennox reflect this. In their recent earnings report, they beat earnings per share estimates by $0.13 at $0.90. Revenues came in at $793 million, an 11% increase, and beat estimates by $46 million.
For the full year, Lennox is on target to hit revenue of $3.9 billion and have earnings per share come in at $7.85. The increase in earnings per share would be a 12% increase compared to the prior year. As the company works to control costs, they expect to increase net profit margins to 9%.
According to Lennox, 2018 is looking just as good. The company is expecting earnings per share to hit $8.95 and grow net profit margins to over 9%.
Potential Issues With Lennox
Of course, you can’t just look at the positives when investing in a company. You have to be aware of any roadblocks to further growth. Lennox has a few ahead of them.
Namely, the slowdown in housing starts in the US. With fewer homes being built, there will be a smaller need for air conditioning units.
Additionally, retailers are pulling back from opening new stores and some are closing more stores as consumers flock to online shopping. This can hurt Lennox, especially in the commercial and grocery store segments. And depending on how the Amazon deal with Whole Foods plays out, it could have a large impact.
Finally, there is the unknown with the Trump administration. Will the government put taxes or tariffs on imports? If so, you can expect foreign countries to do the same to US products. This could cause a rise in the cost of doing business for Lennox.
Should You Invest Or Not?
So knowing the good and the bad, should you invest in Lennox? I am bullish on the stock. While there are potential issues, I don’t see any of them having a large impact on Lennox. For example, even with fewer new homes being built, existing homes will still need to replace their air conditioning units at some point.
The company is running on all cylinders, has a great reputation, and doesn’t rely in one area for profits. Add in the work they are doing to control and cut costs, and Lennox should continue to squeeze more profit out of every dollar it makes.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.