DCF Studio

    LII · NYQ · Industrials

    Lennox International Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 231.72

    Market price

    USD 359.23

    Implied upside

    -35.5%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 3.1% of revenue against depreciation of 1.8%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 231.72-35.5%
    Exit multiple
    USD 298.52-16.9%
    Market price
    USD 359.23

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m406m813mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 5.4bnUSD 5.5bnUSD 5.7bnUSD 5.9bnUSD 6.1bn+3.3%
    EBITUSD 949.4mUSD 980.3mUSD 1.0bnUSD 1.0bnUSD 1.1bn+3.3%
    NOPATUSD 766.9mUSD 791.9mUSD 817.8mUSD 844.4mUSD 872.0m+3.3%
    Add depreciation & amortisationUSD 98.2mUSD 101.4mUSD 104.7mUSD 108.1mUSD 111.7m+3.3%
    Less capital expenditureUSD -167.8mUSD -173.3mUSD -179.0mUSD -184.8mUSD -190.8m+3.3%
    Less increase in working capitalUSD 17.4mUSD 18.0mUSD 18.6mUSD 19.2mUSD 19.8m-3.3%
    Free cashflow to firmUSD 714.7mUSD 738.1mUSD 762.1mUSD 787.0mUSD 812.6m+3.3%
    Discount factor0.95220.86340.78290.70990.6437-
    Present valueUSD 680.6mUSD 637.3mUSD 596.7mUSD 558.7mUSD 523.1m-6.4%
    Present Value Of The ForecastUSD 3.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.123Reported 1.184, pulled toward 1.0 (Blume)
    Cost of equity11.18%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 12.4bn87.5% of capital
    Total debtUSD 1.8bn12.5% of capital, book value as a proxy
    Tax rate19.2%Effective, capped at statutory
    WACC10.28%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 231.72

    70% of EV

    Forecast FCFF, final year
    USD 812.6m
    Capex at depreciation, working capital in reinvestment
    USD 872.0m
    Less reinvestment at g/ROIC (6.1% of NOPAT)
    USD -52.8m
    Capitalised
    USD 819.2m
    ROIC (reported)
    41.3%
    Terminal value, undiscounted
    USD 10.8bn
    Terminal value, discounted
    USD 6.9bn
    Enterprise value
    USD 9.9bn
    Less net debt
    USD 1.7bn
    Equity value
    USD 8.2bn

    Exit at 12.1x EBITDA

    Value per shareUSD 298.52

    76% of EV

    Terminal value, undiscounted
    USD 14.5bn
    Terminal value, discounted
    USD 9.3bn
    Enterprise value
    USD 12.3bn
    Less net debt
    USD 1.7bn
    Equity value
    USD 10.6bn

    Spread between methods: 25%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.29%287.58305.26325.96350.55380.22
    9.29%245.00257.54271.90288.51307.95
    10.29%212.14221.35231.72243.49256.97
    11.29%186.00192.97200.70209.34219.07
    12.29%164.73170.11176.01182.54189.79

    Outlined: this model. Green text: above today's price of 359.23. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.3%12.0%+8.7pp
    EBIT margin17.7%25.6%+7.9pp
    Discount rate10.3%7.8%-2.5pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.