LII WACC - Weighted Average Cost of Capital
The WACC of Lennox International Inc (LII) is 8.9%.
| Range | Selected | |
| Cost of equity | 8.0% - 10.3% | 9.15% |
| Tax rate | 19.1% - 19.5% | 19.3% |
| Cost of debt | 4.0% - 4.5% | 4.25% |
| WACC | 7.7% - 10.0% | 8.9% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.89 | 0.98 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.0% | 10.3% |
| Tax rate | 19.1% | 19.5% |
| Debt/Equity ratio | 0.06 | 0.06 |
| Cost of debt | 4.0% | 4.5% |
| After-tax WACC | 7.7% | 10.0% |
| Selected WACC | 8.9% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| LII | Lennox International Inc | 0.06 | 0.9 | 0.86 |
| AOS | A. O. Smith Corp | 0.02 | 0.73 | 0.72 |
| CNR | Cornerstone Building Brands Inc | 0.06 | 1.45 | 1.38 |
| DOOR | Masonite International Corp | 0.38 | 1.54 | 1.18 |
| FBHS | Fortune Brands Home & Security Inc | 0.34 | 1.57 | 1.23 |
| GFF | Griffon Corp | 0.47 | 0.9 | 0.66 |
| JELD | JELD-WEN Holding Inc | 3.28 | 0.46 | 0.13 |
| TREX | Trex Company Inc | 0.03 | 0.95 | 0.93 |
| UFPI | Ufp Industries Inc | 0.04 | 0.72 | 0.7 |
| WMS | Advanced Drainage Systems Inc | 0.15 | 1.04 | 0.93 |
| Low | High | |
| Unlevered beta | 0.8 | 0.93 |
| Relevered beta | 0.84 | 0.97 |
| Adjusted relevered beta | 0.89 | 0.98 |
LII's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for LII:
cost_of_equity (9.15%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.89) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.