High-Returning Lennox Is a North American HVAC Pure Play

Lennox offers a variety of HVAC solutions, led by its flagship Lennox brand, serving global residential, light commercial, and more-complex applied commercial markets. Owing to the high quality of its products and the significant efficiency gains achieved by its customers, the company has significant share in residential and light commercial markets, which we estimate in the low to mid-teens. Lennox is unusual among its residential HVAC peers for pursuing a distribution strategy heavily reliant on company-owned direct distribution, whereas peers lean heavily on independent third-party distributors. The company maintains a footprint of over 200 of its own stores, offering both direct retail and distribution to contractors and end customers. It operates an asset-light model, so it is a highly cash-generative business that can fund its product development, growth initiatives, and generous shareholder remuneration policies.