Summary
- Lennox International has enjoyed a run up in share price that does not appear justified.
- Aggressive debt funded share repurchases has put Lennox International among the ranks of the growing numbers of companies whose management pursue policies resulting in negative shareholders' equity.
- It's believed the current high share price is unsustainable, making Lennox International shares a short opportunity.
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Investment Thesis
Simply put, Lennox International (LII) shares are way over priced at present. This makes for a shorting opportunity, based purely on share price. A detailed analysis of the company's financials and its outlook appears below.
The Dividend Growth Income+ Club Approach
The logo of the DGI+ Club explained:
Total Return, Dividends, Share Price
The only way an investor can achieve a positive return on an investment in shares is through receipt of dividends and/or an increase in the share price above the buy price - the only way. For more information and background on share value assessment please visit, "Forget Irrelevant Valuations, Returns Based Investing Is A Better Approach" and "Free Cash Flows: Let's Have A Discussion Towards A Better Understanding."
Assets, Liabilities
The engines and the lubrication, along with human talent, drive the business. Shareholders have no legal rights to or ownership of the assets. Shareholders in a limited liability company have no legal obligations in respect of the liabilities.
"Equity Bucket"
Shareholders have an equitable entitlement to their equity in the company. Equity is increased by capital raised from shareholders, and by earnings of the company. While shareholders have an equitable entitlement to their equity in the company, they have little to no say in how the equity is distributed. In some companies, management actions in respect of the shareholders' equity do not always benefit shareholders and can be highly detrimental to shareholders. At the DGI+ Club, in addition to reviewing profitability, balance sheet strength, liquidity, and other metrics, we take the extra step of checking the "Equity Bucket" for "leaks," i.e., effective distributions out of or other reductions in equity that do not benefit shareholders.
