Lennox International Inc (NYSE:LII): A Caviar Cruise Quality Investing Candidate

The Caviar Cruise screening method represents a systematic way to approach quality investing, focusing on companies with good past performance, high profitability, sound financial condition, and lasting business models. This strategy highlights measurable numbers that find businesses able to provide steady returns over long timeframes, making them fitting for buy-and-hold investors looking for long-term wealth building through ownership of outstanding companies.

Lennox International Inc (NYSE:LII) appears as a strong candidate through this quality-focused view. The Texas-based maker of heating, ventilation, air conditioning, and refrigeration products shows several features that match the Caviar Cruise method's strict standards for finding high-grade businesses.

Historical Growth Performance

The Caviar Cruise method favors companies showing steady revenue and profit increase, demanding at least 5% yearly growth in both groups over five years. Lennox International greatly passes these basic requirements:

• Revenue growth (5Y CAGR): 8.49%
• EBIT growth (5Y CAGR): 16.35%

More importantly, the company's EBIT growth strongly exceeds its revenue growth, pointing to better operational effectiveness and possible pricing strength. This number suggests Lennox International gains from economies of scale or market benefits that let it turn more revenue into profits at a faster pace.

Profitability and Capital Efficiency

Return on invested capital acts as a key measure in quality investing, showing how well a company produces profits from its capital foundation. The Caviar Cruise screen sets a minimum 15% ROIC leaving out cash, goodwill, and intangibles. Lennox International provides very good performance in this important area:

• ROIC excluding cash, goodwill, and intangibles: 42.93%

This notable return is much higher than the needed level and points to superb capital use effectiveness. Companies reaching such high returns usually have lasting market benefits, good management groups, and business models that build significant value for shareholders.

Financial Health and Cash Flow Quality

The method highlights financial steadiness through careful debt levels compared to cash creation. The screen needs a debt-to-free-cash-flow number under 5, suggesting the company could in theory pay back all debt within five years using current cash flow. Lennox International shows very good strength in this aspect:

• Debt-to-free-cash-flow ratio: 1.74

This number implies the company keeps a careful capital structure with little financial risk. Also, the profit quality measure, which shows the change of accounting profits into real cash, displays good performance with a five-year average of 91.54%, easily passing the 75% level. This points to Lennox International's reported earnings being supported by real cash creation instead of accounting changes.

Fundamental Analysis Overview

The full fundamental analysis report gives Lennox International a firm rating of 7 out of 10, noting very high profitability with a score of 9/10 and acceptable financial condition at 7/10. The analysis finds outstanding returns on assets (22.85%), equity (92.68%), and invested capital (37.71%) that are much better than industry competitors. While price looks somewhat high with a score of 2/10, the company shows respectable growth movement scoring 6/10, with expected revenue growth of 8.49% and EPS growth of 10.73% per year going forward.

Business Model Considerations

Beyond the numerical measures, Lennox International works in necessary climate control markets with long-term demand reasons, including energy efficiency patterns, replacement cycles, and climate adjustment needs. The company's varied distribution through direct sales, distributors, and company-owned stores gives several income paths. Its collection covering residential and business sections offers some downturn strength, as HVAC systems represent necessary infrastructure rather than optional buys.

For investors wanting to look at more companies that fit the Caviar Cruise quality investing rules, the complete screening results give a wider group of possible quality investments.

Disclaimer: This analysis is for informational purposes only and does not constitute investment advice, recommendation, or endorsement of any security. Investors should conduct their own research and consult with financial advisors before making investment decisions. Past performance does not guarantee future results.