Lennox International Inc. (LII): A Bull Case Theory

We came across a bullish thesis on Lennox International Inc. on Value investing subreddit by RuInvests. In this article, we will summarize the bulls’ thesis on LII. Lennox International Inc.’s share was trading at $570.54 as of August 25th. LII’s trailing and forward P/E were 24.40 and 24.94 respectively according to Yahoo Finance.

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Lennox International, a $20 billion market cap HVAC manufacturer, may not appear like the flashiest investment, but its fundamentals tell a compelling story. The company is delivering exceptional capital efficiency, with a 39% ROIC that stands out in an industrial sector where peers typically achieve much less. Revenue momentum has also been strong, with the home comfort segment growing 25% year-over-year and the building climate division up 16%. While negative ROE may initially raise red flags, it is the result of aggressive capital returns—buybacks and dividends—funded by robust and growing free cash flow, underscoring disciplined capital allocation rather than financial distress.

Lennox benefits from attractive industry dynamics: high switching costs deter customers from replacing entire HVAC systems prematurely, maintenance and parts provide a recurring revenue stream, and local oligopolies create durable pricing power given the limited number of contractors in most regions. The bear case centers on macro risks: a construction slowdown could weaken demand for new installations, and the corporate segment continues to post operating losses, deepening to $120.3 million from $93.9 million. However, the bull case rests on a powerful replacement cycle tailwind.

With most HVAC systems lasting 15–20 years, the early 2000s construction boom is now entering peak replacement years, creating a significant long-term driver. Added to this is the secular demand from climate change, as extreme weather and rising temperatures further entrench the need for reliable HVAC systems. Taken together, Lennox offers investors a business with superior returns, resilient economics, and multiple catalysts for sustained growth.

Previously we covered a bullish thesis on Terex Corporation (TEX) by Value Don’t Lie in February 2025, which highlighted the ESG acquisition, cyclical trough in MP and AWP, and potential for multiple expansion as leverage declines. The stock has appreciated approximately 39.67% since our coverage as recovery gained momentum. The thesis still stands with ESG providing stability. RuInvests shares a similar view but emphasizes capital efficiency and recurring demand in Lennox International.

Lennox International Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 45 hedge fund portfolios held LII at the end of the first quarter which was 39 in the previous quarter. While we acknowledge the risk and potential of LII as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LII and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.