William Blair reiterates Outperform rating on Lennox stock despite dip

William Blair reiterated an Outperform rating on Lennox International (LII) despite an 8% stock decline and extended inventory normalization timelines to Q2 2026, which prompted downward EPS revisions for late 2025 and early 2026. The firm remains optimistic for 2026, projecting EPS of $25.50-$26.00 and over 10% growth, citing strong margin execution and market recovery, with the stock trading below 20 times 2026 EPS. This long-term confidence contrasts with recent mixed Q3 2025 results, where EPS beat estimates but revenue fell short, though positive pre-market trading indicated investor belief in strategic initiatives.

Analysis

Lennox International (LII) shares have recently declined 8% to $493.34, nearing its 52-week low, primarily due to weaker residential sell-through and an extended inventory normalization timeline now projected for Q2 2026. This extended timeline has led to downward revisions of EPS expectations for late 2025 and early 2026 by 13 analysts, despite the company maintaining a "GOOD" financial health score.

William Blair, however, has reiterated an Outperform rating, projecting a 2026 EPS range of $25.50-$26.00, representing over 10% growth. This optimistic outlook is underpinned by anticipated end-market normalization, strong margin execution, recovery in emergency replacements, and solid commercial margins, with shares currently trading at less than 20 times 2026 EPS, suggesting limited downside risk.

Recent Q3 2025 results presented a mixed picture, with adjusted EPS of $6.98 exceeding the $6.93 forecast, yet revenue of $1.43 billion fell short of the $1.5 billion prediction. Despite the revenue miss, positive pre-market trading activity indicated investor confidence in Lennox's strategic initiatives and future growth prospects, aligning with the long-term bullish sentiment from William Blair.

Key Decisions for Investors

• Monitor LII's inventory normalization progress, particularly residential sell-through, as the extended timeline to Q2 2026 represents a key near-term headwind.
• Evaluate the sustainability of margin expansion and commercial segment strength as critical drivers for achieving William Blair's optimistic 2026 EPS targets.
• Consider the current valuation, trading below 20x 2026 EPS, as a potential entry point for long-term investors, balancing near-term inventory risks with long-term recovery prospects.