Morgan Stanley has lowered its 12-month price target for Lennox International Inc. to $450 from $475 while maintaining an Underweight recommendation on the stock. The new target sits below the analyst low of $475 and well under the analyst high of $675, and available valuation measures indicate the shares may be slightly undervalued on a Fair Value basis.
The firm’s reassessment follows Lennox’s fourth-quarter 2025 financial report. Morgan Stanley cited a cluster of operating challenges - continued softness in volumes, slow end-demand, the risk of under-absorbed fixed costs and mounting concerns about pricing - as reasons for a derating of the stock. Market data further show that five analysts have recently trimmed their earnings forecasts for the company for the coming period.
On earnings, Morgan Stanley’s outlook for 2026 calls for $23.63 per share, a figure that sits close to the bottom of Lennox’s own 2026 guidance range of $23.50 to $25.00. The firm flagged several headwinds likely to weigh on the company’s near-term results: continued destocking in channels, demand softness across both replacement and new-construction end markets, and margin compression tied to excess inventory anticipated in the first half of 2026.
Valuation metrics referenced by the firm show Lennox trading at a price-to-earnings ratio of 21.4 and a price/earnings-to-growth (PEG) ratio of 19.5, indicating the stock is priced at a high multiple relative to its expected near-term earnings growth.
On the top-line growth assumptions, Morgan Stanley models 1.6% organic growth for Lennox next year, below the company’s 2% to 3% guidance. The bank’s forecast breaks down the company’s segment performance with the Residential Heating, Cooling & Systems (HCS) business expected to contract by roughly 2%, partially offset by an estimated 8% expansion in the Light Commercial (BCS) segment and about a 2% incremental lift attributed to the NSI acquisition. These assumptions follow a reported 2.73% decline in Lennox’s revenue over the past twelve months, even as financial health assessments remain solid.
For the March 2026 quarter, Morgan Stanley projects earnings per share of $3.35, which would represent 14% of its full-year EPS estimate compared with a historical pattern in which first-quarter results typically account for around 16% of annual earnings. The firm expects the quarter to be pressured by ongoing channel destocking and under-absorption, noting a projected 12% organic decline in the Residential segment as it lapped pre-buying activity seen in Q1 2025.
Despite these shorter-term concerns, Lennox has continued a long-standing dividend policy: the company has paid dividends for 27 consecutive years and increased them for 16 straight years, underscoring a track record of returning cash to shareholders.
In its reported fourth-quarter 2025 results, Lennox posted earnings per share of $4.45, missing the consensus projection of $4.77. Revenue for the quarter came in at $1.2 billion, below the expected $1.27 billion. Those misses rounded out a quarter that reinforced some analysts’ caution about near-term demand and margin dynamics.
The combination of lower analyst earnings revisions, the company’s Q4 shortfall on EPS and revenue, and Morgan Stanley’s projection of subdued organic growth and margin risk underpin the broker’s decision to reduce the price target and maintain the Underweight stance. These developments are likely to remain focal points for investors and market watchers as Lennox moves into 2026 with inventory overhang and end-market uncertainty.
Context for readers - The firm’s updated projections and the company’s recent quarterly miss together form the basis for the revised valuation. Analysts and investors will be monitoring demand trends in replacement and new construction, inventory levels, and pricing dynamics for signs of improvement or further deterioration.