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Lennox International Inc. (LII) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Lennox International Inc. (LII)

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Intrinsic Value (DCF)

Current$533.25
→
Intrinsic$609.56
+14%
$405.81$609.56$996.41
Market implies 17% growth for 5 years
LII appears fairly valued — current price aligns with our DCF estimate.
At $533, the market prices in continued high-teens cash flow growth (17%) — likely reflecting buybacks, margin stability, and ecosystem strength.
Range: Bear $406 → Bull $996. Current price implies expectations below the base case, but well above the bear case.
Discount ↓Growth →16%18%20%22%
8%$749$814$884$958
10%$518$562$610$660
12%$389$423$458$496
14%$308$334$362$392

Bull Case

  • Bull case ($996) offers 87% upside at 24% growth, 9% discount
  • 13% margin of safety vs. base case estimate
  • Market-implied growth (17%) ≤ historical CAGR (20%)

Bear Case

  • Bear case ($406) implies 24% downside at 16% growth, 12% discount
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5-Year Free Cash Flow Projection

Year 1$938.52M
Year 2$1.13B
Year 3$1.35B
Year 4$1.62B
Year 5$1.95B
Terminal$28.64B

📐 Model Inputs

Growth Rate20.0%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$782.10MTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is LII stock undervalued or overvalued?
🟢 UNDERVALUED

LII trades at $533.25 vs. our DCF-derived intrinsic value of $609.56, implying +17% upside. At a 10.0% WACC and 20.0% projected FCF growth, the market appears to be underpricing the present value of LII's future cash flows. The bear case ($389.49) still suggests upside, providing margin of safety.

What is LII's intrinsic value?

Using a 5-year DCF model: Base FCF of $782M, projected at 20.0% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 10.0% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $1.07B net debt and dividing by 0.04B shares: Bear $389.49 | Base $609.56 | Bull $933.64. Current price $533.25 implies +17% to base case.

How is LII's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 20.0% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=10.0%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($22.90B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 29.3x.