Intrinsic value of Lennox International, Inc. - LII

Previous Close

$289.47

  Intrinsic Value

$29.38

stock screener

  Rating & Target

str. sell

-90%

Previous close

$289.47

 
Intrinsic value

$29.38

 
Up/down potential

-90%

 
Rating

str. sell

We calculate the intrinsic value of LII stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 11.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  3,962
  4,053
  4,157
  4,274
  4,403
  4,546
  4,700
  4,868
  5,049
  5,242
  5,450
  5,671
  5,906
  6,157
  6,422
  6,704
  7,001
  7,316
  7,649
  8,001
  8,372
  8,763
  9,175
  9,609
  10,067
  10,549
  11,056
  11,589
  12,150
  12,741
Variable operating expenses, $m
  2,345
  2,398
  2,460
  2,528
  2,604
  2,688
  2,779
  2,877
  2,983
  3,097
  3,200
  3,330
  3,468
  3,615
  3,771
  3,936
  4,111
  4,296
  4,492
  4,698
  4,916
  5,145
  5,387
  5,642
  5,911
  6,194
  6,492
  6,805
  7,134
  7,481
Fixed operating expenses, $m
  1,137
  1,163
  1,188
  1,214
  1,241
  1,268
  1,296
  1,325
  1,354
  1,384
  1,414
  1,445
  1,477
  1,509
  1,543
  1,577
  1,611
  1,647
  1,683
  1,720
  1,758
  1,796
  1,836
  1,876
  1,918
  1,960
  2,003
  2,047
  2,092
  2,138
Total operating expenses, $m
  3,482
  3,561
  3,648
  3,742
  3,845
  3,956
  4,075
  4,202
  4,337
  4,481
  4,614
  4,775
  4,945
  5,124
  5,314
  5,513
  5,722
  5,943
  6,175
  6,418
  6,674
  6,941
  7,223
  7,518
  7,829
  8,154
  8,495
  8,852
  9,226
  9,619
Operating income, $m
  479
  492
  509
  531
  558
  590
  626
  666
  712
  762
  836
  896
  961
  1,032
  1,109
  1,191
  1,279
  1,374
  1,475
  1,583
  1,698
  1,821
  1,952
  2,091
  2,238
  2,395
  2,561
  2,737
  2,924
  3,121
EBITDA, $m
  555
  569
  588
  611
  640
  673
  712
  755
  803
  856
  914
  977
  1,046
  1,120
  1,201
  1,287
  1,379
  1,479
  1,584
  1,698
  1,818
  1,947
  2,083
  2,228
  2,382
  2,546
  2,719
  2,903
  3,098
  3,304
Interest expense (income), $m
  26
  56
  40
  42
  45
  47
  50
  53
  57
  61
  65
  69
  74
  79
  84
  90
  96
  102
  109
  116
  124
  132
  140
  149
  159
  169
  179
  190
  201
  214
  226
Earnings before tax, $m
  423
  452
  467
  487
  511
  539
  572
  609
  651
  697
  766
  822
  882
  948
  1,018
  1,095
  1,177
  1,264
  1,358
  1,459
  1,566
  1,681
  1,802
  1,932
  2,070
  2,216
  2,371
  2,536
  2,710
  2,895
Tax expense, $m
  114
  122
  126
  131
  138
  146
  154
  165
  176
  188
  207
  222
  238
  256
  275
  296
  318
  341
  367
  394
  423
  454
  487
  522
  559
  598
  640
  685
  732
  782
Net income, $m
  309
  330
  341
  355
  373
  394
  418
  445
  475
  509
  559
  600
  644
  692
  743
  799
  859
  923
  992
  1,065
  1,143
  1,227
  1,316
  1,410
  1,511
  1,618
  1,731
  1,851
  1,978
  2,113

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,854
  1,896
  1,945
  2,000
  2,061
  2,127
  2,200
  2,278
  2,362
  2,453
  2,550
  2,654
  2,764
  2,881
  3,005
  3,137
  3,276
  3,424
  3,579
  3,744
  3,917
  4,101
  4,293
  4,497
  4,711
  4,936
  5,173
  5,423
  5,686
  5,962
Adjusted assets (=assets-cash), $m
  1,854
  1,896
  1,945
  2,000
  2,061
  2,127
  2,200
  2,278
  2,362
  2,453
  2,550
  2,654
  2,764
  2,881
  3,005
  3,137
  3,276
  3,424
  3,579
  3,744
  3,917
  4,101
  4,293
  4,497
  4,711
  4,936
  5,173
  5,423
  5,686
  5,962
Revenue / Adjusted assets
  2.137
  2.138
  2.137
  2.137
  2.136
  2.137
  2.136
  2.137
  2.138
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
  2.137
Average production assets, $m
  511
  523
  536
  551
  568
  586
  606
  628
  651
  676
  703
  732
  762
  794
  828
  865
  903
  944
  987
  1,032
  1,080
  1,130
  1,184
  1,240
  1,299
  1,361
  1,426
  1,495
  1,567
  1,644
Working capital, $m
  341
  349
  357
  368
  379
  391
  404
  419
  434
  451
  469
  488
  508
  529
  552
  577
  602
  629
  658
  688
  720
  754
  789
  826
  866
  907
  951
  997
  1,045
  1,096
Total debt, $m
  743
  781
  825
  874
  929
  989
  1,054
  1,125
  1,201
  1,282
  1,370
  1,463
  1,562
  1,667
  1,779
  1,898
  2,023
  2,156
  2,296
  2,444
  2,600
  2,765
  2,939
  3,122
  3,314
  3,517
  3,731
  3,955
  4,192
  4,440
Total liabilities, $m
  1,668
  1,707
  1,751
  1,800
  1,855
  1,914
  1,980
  2,050
  2,126
  2,208
  2,295
  2,388
  2,487
  2,593
  2,705
  2,823
  2,949
  3,081
  3,222
  3,370
  3,526
  3,690
  3,864
  4,047
  4,240
  4,443
  4,656
  4,881
  5,117
  5,366
Total equity, $m
  185
  190
  195
  200
  206
  213
  220
  228
  236
  245
  255
  265
  276
  288
  301
  314
  328
  342
  358
  374
  392
  410
  429
  450
  471
  494
  517
  542
  569
  596
Total liabilities and equity, $m
  1,853
  1,897
  1,946
  2,000
  2,061
  2,127
  2,200
  2,278
  2,362
  2,453
  2,550
  2,653
  2,763
  2,881
  3,006
  3,137
  3,277
  3,423
  3,580
  3,744
  3,918
  4,100
  4,293
  4,497
  4,711
  4,937
  5,173
  5,423
  5,686
  5,962
Debt-to-equity ratio
  4.010
  4.120
  4.240
  4.370
  4.510
  4.650
  4.790
  4.940
  5.080
  5.230
  5.370
  5.510
  5.650
  5.790
  5.920
  6.050
  6.180
  6.300
  6.410
  6.530
  6.640
  6.740
  6.840
  6.940
  7.040
  7.130
  7.210
  7.290
  7.370
  7.450
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  309
  330
  341
  355
  373
  394
  418
  445
  475
  509
  559
  600
  644
  692
  743
  799
  859
  923
  992
  1,065
  1,143
  1,227
  1,316
  1,410
  1,511
  1,618
  1,731
  1,851
  1,978
  2,113
Depreciation, amort., depletion, $m
  75
  77
  78
  80
  82
  84
  86
  88
  91
  94
  78
  81
  85
  88
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  144
  151
  158
  166
  174
  183
Funds from operations, $m
  384
  407
  419
  435
  455
  478
  504
  533
  566
  603
  638
  681
  729
  780
  836
  895
  959
  1,028
  1,101
  1,180
  1,263
  1,352
  1,447
  1,548
  1,655
  1,769
  1,889
  2,017
  2,153
  2,296
Change in working capital, $m
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  44
  46
  48
  51
Cash from operations, $m
  378
  399
  410
  425
  444
  465
  490
  519
  551
  586
  620
  662
  708
  759
  813
  871
  934
  1,001
  1,073
  1,149
  1,231
  1,319
  1,412
  1,511
  1,616
  1,727
  1,846
  1,971
  2,104
  2,245
Maintenance CAPEX, $m
  -56
  -57
  -58
  -60
  -61
  -63
  -65
  -67
  -70
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -100
  -105
  -110
  -115
  -120
  -126
  -132
  -138
  -144
  -151
  -158
  -166
  -174
New CAPEX, $m
  -11
  -12
  -13
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
Cash from investing activities, $m
  -67
  -69
  -71
  -75
  -78
  -81
  -85
  -89
  -93
  -97
  -102
  -107
  -111
  -117
  -122
  -128
  -134
  -141
  -148
  -155
  -163
  -170
  -179
  -188
  -197
  -206
  -216
  -227
  -238
  -250
Free cash flow, $m
  311
  330
  339
  351
  366
  384
  405
  430
  458
  489
  518
  556
  597
  642
  690
  743
  799
  860
  925
  994
  1,069
  1,148
  1,233
  1,323
  1,419
  1,521
  1,629
  1,744
  1,866
  1,995
Issuance/(repayment) of debt, $m
  -298
  38
  44
  49
  55
  60
  65
  71
  76
  82
  87
  93
  99
  105
  112
  119
  125
  133
  140
  148
  156
  165
  174
  183
  193
  203
  214
  225
  236
  249
Issuance/(repurchase) of shares, $m
  26
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -272
  38
  44
  49
  55
  60
  65
  71
  76
  82
  87
  93
  99
  105
  112
  119
  125
  133
  140
  148
  156
  165
  174
  183
  193
  203
  214
  225
  236
  249
Total cash flow (excl. dividends), $m
  39
  369
  383
  400
  420
  444
  471
  500
  534
  570
  605
  649
  696
  747
  802
  861
  925
  992
  1,065
  1,143
  1,225
  1,313
  1,407
  1,506
  1,612
  1,724
  1,843
  1,969
  2,102
  2,244
Retained Cash Flow (-), $m
  -335
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  -296
  364
  378
  394
  414
  437
  463
  493
  525
  561
  595
  638
  685
  735
  790
  848
  911
  978
  1,049
  1,126
  1,208
  1,295
  1,387
  1,486
  1,590
  1,701
  1,819
  1,944
  2,076
  2,216
Discount rate, %
  9.50
  9.98
  10.47
  11.00
  11.55
  12.12
  12.73
  13.37
  14.04
  14.74
  15.47
  16.25
  17.06
  17.91
  18.81
  19.75
  20.74
  21.77
  22.86
  24.01
  25.21
  26.47
  27.79
  29.18
  30.64
  32.17
  33.78
  35.47
  37.24
  39.10
PV of cash for distribution, $m
  -271
  301
  280
  260
  240
  220
  200
  181
  161
  142
  122
  105
  88
  73
  60
  47
  37
  28
  21
  15
  11
  7
  5
  3
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Lennox International Inc. is a provider of climate control solutions. The Company designs, manufactures and markets a range of products for the heating, ventilation, air conditioning and refrigeration (HVACR) markets. It operates through three segments: Residential Heating & Cooling; Commercial Heating & Cooling, and Refrigeration. It manufactures and markets a range of furnaces, air conditioners, heat pumps, packaged heating and cooling systems, equipment and accessories to manage indoor air quality, comfort control products, replacement parts and supplies and related products for both the residential replacement and new construction markets in North America. It manufactures and sells unitary heating and cooling equipment used in light commercial applications, such as low-rise office buildings, restaurants, retail centers, churches and schools. It manufactures and markets equipment for the global commercial refrigeration markets under the Heatcraft Worldwide Refrigeration name.

FINANCIAL RATIOS  of  Lennox International, Inc. (LII)

Valuation Ratios
P/E Ratio 44.7
Price to Sales 3.4
Price to Book 327.3
Price to Tangible Book
Price to Cash Flow 35
Price to Free Cash Flow 45.9
Growth Rates
Sales Growth Rate 5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20%
Cap. Spend. - 3 Yr. Gr. Rate 1.5%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 1621.1%
Total Debt to Equity 2284.2%
Interest Coverage 17
Management Effectiveness
Return On Assets 17.2%
Ret/ On Assets - 3 Yr. Avg. 14%
Return On Total Capital 31.8%
Ret/ On T. Cap. - 3 Yr. Avg. 25.2%
Return On Equity 400%
Return On Equity - 3 Yr. Avg. 275.6%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 29.6%
Gross Margin - 3 Yr. Avg. 27.9%
EBITDA Margin 13.4%
EBITDA Margin - 3 Yr. Avg. 11.9%
Operating Margin 11.8%
Oper. Margin - 3 Yr. Avg. 10.2%
Pre-Tax Margin 11.1%
Pre-Tax Margin - 3 Yr. Avg. 9.6%
Net Profit Margin 7.6%
Net Profit Margin - 3 Yr. Avg. 6.4%
Effective Tax Rate 30.8%
Eff/ Tax Rate - 3 Yr. Avg. 33.1%
Payout Ratio 24.8%

LII stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LII stock intrinsic value calculation we used $3884 million for the last fiscal year's total revenue generated by Lennox International, Inc.. The default revenue input number comes from 0001 income statement of Lennox International, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LII stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.5%, whose default value for LII is calculated based on our internal credit rating of Lennox International, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Lennox International, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LII stock the variable cost ratio is equal to 59.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1113 million in the base year in the intrinsic value calculation for LII stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Lennox International, Inc..

Corporate tax rate of 27% is the nominal tax rate for Lennox International, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LII stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LII are equal to 12.9%.

Life of production assets of 9 years is the average useful life of capital assets used in Lennox International, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LII is equal to 8.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-149.6 million for Lennox International, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 39.856 million for Lennox International, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Lennox International, Inc. at the current share price and the inputted number of shares is $11.5 billion.

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