S&P Lifts Lennox Int'l (LII) to 'BBB'; Notes Improved Cash Flow Generation
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Price: $467.85 -1.85%
Overall Analyst Rating:
NEUTRAL (
Down)
Dividend Yield: 0.9%
EPS Growth %: +22.6%
Overall Analyst Rating:
NEUTRAL (
Down)Dividend Yield: 0.9%
EPS Growth %: +22.6%
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Standard & Poor's Ratings Services said today it raised its corporate credit rating on Richardson, Texas-based Lennox International Inc. (NYSE: LII) to 'BBB' from 'BBB-'. The outlook is stable.
The upgrade recognizes Lennox's improved credit measures. During 2013, the company demonstrated better-than-expected cash flow generation and used it to significantly reduce debt balances. In our view, this improvement is attributable to favorable pricing, allowing the company to pass higher input costs to its customers. The ratings also incorporate Standard & Poor's expectation of an increase in housing starts to 1.2 million units in 2014 and 1.5 million in 2015. Under this scenario, we expect leverage to remain less than 1.5x and EBITDA to reach approximately $370 million in 2014.
"The stable outlook incorporates our expectation that Lennox will maintain credit measures at levels we would consider consistent with a modest financial risk profile, including leverage at about 1.5x EBITDA," said Standard & Poor's credit analyst Chiza Vitta.
We would consider a downgrade, if leverage climbed above 2x and remained elevated. This could happen if the company used its revolving credit facility to finance dividends, stock repurchases, or acquisitions.
Although unlikely in the next 12 months, we would consider a positive rating action if the business risk profile of the company improved within or beyond its current satisfactory assessment. This could happen as the business continues to grow or if margins improve.
The upgrade recognizes Lennox's improved credit measures. During 2013, the company demonstrated better-than-expected cash flow generation and used it to significantly reduce debt balances. In our view, this improvement is attributable to favorable pricing, allowing the company to pass higher input costs to its customers. The ratings also incorporate Standard & Poor's expectation of an increase in housing starts to 1.2 million units in 2014 and 1.5 million in 2015. Under this scenario, we expect leverage to remain less than 1.5x and EBITDA to reach approximately $370 million in 2014.
"The stable outlook incorporates our expectation that Lennox will maintain credit measures at levels we would consider consistent with a modest financial risk profile, including leverage at about 1.5x EBITDA," said Standard & Poor's credit analyst Chiza Vitta.
We would consider a downgrade, if leverage climbed above 2x and remained elevated. This could happen if the company used its revolving credit facility to finance dividends, stock repurchases, or acquisitions.
Although unlikely in the next 12 months, we would consider a positive rating action if the business risk profile of the company improved within or beyond its current satisfactory assessment. This could happen as the business continues to grow or if margins improve.
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