Lennox International (NYSE: LII) and Watsco (NYSE:WSO) are both mid-cap construction companies, but which is the better stock? We will compare the two companies based on the strength of their risk, institutional ownership, analyst recommendations, earnings, dividends, valuation and profitabiliy.

Volatility and Risk

Lennox International has a beta of 1.18, indicating that its stock price is 18% more volatile than the S&P 500. Comparatively, Watsco has a beta of 0.82, indicating that its stock price is 18% less volatile than the S&P 500.

Institutional and Insider Ownership

68.5% of Lennox International shares are owned by institutional investors. Comparatively, 79.2% of Watsco shares are owned by institutional investors. 3.9% of Lennox International shares are owned by company insiders. Comparatively, 13.8% of Watsco shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Dividends

Lennox International pays an annual dividend of $1.72 per share and has a dividend yield of 0.9%. Watsco pays an annual dividend of $4.20 per share and has a dividend yield of 2.7%. Lennox International pays out 25.4% of its earnings in the form of a dividend. Watsco pays out 82.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Lennox International has raised its dividend for 5 consecutive years and Watsco has raised its dividend for 3 consecutive years.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Lennox International and Watsco, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Lennox International 1 6 1 0 2.00
Watsco 2 2 3 0 2.14

Lennox International currently has a consensus price target of $166.75, suggesting a potential downside of 11.63%. Watsco has a consensus price target of $147.67, suggesting a potential downside of 4.79%. Given Watsco’s stronger consensus rating and higher probable upside, analysts clearly believe Watsco is more favorable than Lennox International.

Profitability

This table compares Lennox International and Watsco’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Lennox International 7.97% 1,371.49% 16.58%
Watsco 4.13% 13.81% 8.94%

Earnings & Valuation

This table compares Lennox International and Watsco’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Lennox International $3.72 billion 2.16 $530.80 million $6.77 27.87
Watsco $4.24 billion 1.19 $364.60 million $5.12 30.29

Lennox International has higher revenue, but lower earnings than Watsco. Lennox International is trading at a lower price-to-earnings ratio than Watsco, indicating that it is currently the more affordable of the two stocks.

Summary

Lennox International beats Watsco on 9 of the 17 factors compared between the two stocks.

About Lennox International

Lennox International Inc. is a provider of climate control solutions. The Company designs, manufactures and markets a range of products for the heating, ventilation, air conditioning and refrigeration (HVACR) markets. It operates through three segments: Residential Heating & Cooling; Commercial Heating & Cooling, and Refrigeration. It manufactures and markets a range of furnaces, air conditioners, heat pumps, packaged heating and cooling systems, equipment and accessories to manage indoor air quality, comfort control products, replacement parts and supplies and related products for both the residential replacement and new construction markets in North America. It manufactures and sells unitary heating and cooling equipment used in light commercial applications, such as low-rise office buildings, restaurants, retail centers, churches and schools. It manufactures and markets equipment for the global commercial refrigeration markets under the Heatcraft Worldwide Refrigeration name.

About Watsco

Watsco, Inc. is a distributor of air conditioning, heating and refrigeration equipment, and related parts and supplies (HVAC/R) in the HVAC/R distribution industry in North America. As of December 31, 2016, the Company sold a range of non-equipment products, representing more than 300,000 stock keeping units, including parts, ductwork, air movement products, insulation, tools, installation supplies, thermostats and air quality products. It distributes products consisting of equipment, including residential ducted and ductless air conditioners ranging from 1 to 5 tons, gas, electric and oil furnaces ranging from 50,000 to 150,000 British Thermal Units, commercial air conditioning and heating equipment and systems ranging from 1.5 to 25 tons and other specialized equipment; parts, including replacement compressors and motors, and supplies, including ductwork, grills, registers, sheet metal, adhesives and other ancillary supplies. It also sells products to the refrigeration market.

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