Lennox: Attractive Valuations and Impending Recovery in 2026 Make It a Good Buy

The HVAC industry is on the cusp of a transformative recovery, and Lennox International (LII) is uniquely positioned to capitalize on this shift. With a current valuation that appears undervalued relative to historical averages and a strategic focus on energy-efficient innovation, LII presents a compelling case for investors seeking exposure to a sector poised for robust growth in 2026.

Strategic Valuation Timing: A Historical Perspective

Lennox's trailing price-to-earnings (PE) ratio of 23.55 as of September 2025 is below its 10-year historical average of 25.25, according to Macrotrends. This discount becomes even more compelling when compared to the company's performance during past industry recoveries. For instance, during the 2010–2015 economic rebound, LII's PE ratio climbed from 22.2 to 27.21, per Public.com, reflecting investor confidence in its earnings growth. Today, with the stock trading at a 7.5% discount to its long-term average, the valuation appears attractive, particularly as the HVAC market prepares for a 2026 upturn.

Historical EBITDA multiples for the HVAC industry further underscore this opportunity. Current EBITDA multiples for private HVAC firms hover around 8x, a 20% increase from pre-pandemic levels, according to a FirstPageSage report. Lennox's enterprise value-to-EBITDA ratio of 17.42 in 2025, per FinanceCharts, suggests it is trading at a premium to smaller peers but remains justified given its leadership in high-margin, energy-efficient solutions. This premium is likely to narrow as the industry transitions to low-GWP refrigerants and smart HVAC adoption accelerates-a shift that will drive demand for Lennox's cutting-edge products.

Market Cycle Positioning: Aligning with 2026 Recovery Drivers

The HVAC market is projected to grow from $130 billion in 2024 to $200 billion by 2033, fueled by energy efficiency mandates, AI-driven innovations, and the global shift toward decarbonization, according to a LinkedIn analysis. Lennox is proactively aligning with these trends through strategic initiatives:
1. Product Innovation: The launch of the SL22KLV Cold Climate Heat Pump, which operates efficiently in extreme cold using low-GWP refrigerants, positions Lennox to capture a larger share of the green HVAC market, where it already holds 40% market penetration, according to a Monexa analysis.
2. Strategic Partnerships: The joint venture with Samsung to expand ductless HVAC systems-now accounting for 20% of residential sales-leverages Samsung's smart home expertise to meet rising demand for connected, energy-efficient solutions, as noted in a Monexa profile.
3. Digital Transformation: Lennox's D2C e-commerce platform has reduced reliance on traditional distribution channels, boosting high-margin service contracts by 30%, according to the NextSprints guide.

These moves are critical as the industry navigates near-term headwinds. While Lennox projects core revenue growth of just 2% in 2025 due to macroeconomic pressures, per a Lennox investor release, its long-term growth trajectory remains intact. The company's focus on AI-powered predictive maintenance and IoT integration-expected to reduce service calls by 15%-further strengthens its competitive edge, as noted by the Monexa analysis.

Financial Health and Margin Resilience

Lennox's financials reinforce its appeal. The company reported Q2 2025 revenue of $1.5 billion, a 3% year-over-year increase, with GAAP diluted EPS of $7.82, surpassing estimates by $1.48, according to GuruFocus. Segment profit rose 11% to $354 million, driven by $114 million in mix/price benefits despite inflationary pressures. Its return on equity (ROE) of 92.68% and return on invested capital (ROIC) of 33.64% (FinanceCharts) highlight exceptional capital efficiency, while a debt-to-equity ratio of 1.31 indicates manageable leverage.

Critically, Lennox's valuation metrics suggest room for appreciation. With a forward PE of 22.11 and a price-to-book (PB) ratio of 21.48, according to StockAnalysis, the stock trades at a discount to its historical averages and peers. Analysts have set an average price target of $636.82, implying a 15.65% upside from current levels, per StockAnalysis.

Conclusion: A Buy Before the 2026 Upturn

Lennox International's combination of attractive valuations, strategic alignment with industry tailwinds, and robust financials makes it a compelling buy for investors with a medium-term horizon. As the HVAC market enters a recovery phase in 2026-driven by regulatory shifts, technological adoption, and sustainability mandates-LII's proactive positioning in energy-efficient and smart HVAC solutions will likely drive earnings growth and valuation expansion. The current discount to historical averages offers a margin of safety, making this an opportune moment to invest ahead of the anticipated upturn.