Reasons Why A. O. Smith (AOS) Should be in Your Portfolio Now

A. O. Smith Corporation AOS is well poised for growth courtesy of strength across its end markets, strategic acquisitions and focus on operational excellence. The company remains committed to investing in growth opportunities and strengthening its long-term market position.

It has a market capitalization of $12.2 billion. Over the past three months, it has gained 24.5% compared with the industry’s growth of 9.6%. AOS currently carries a Zacks Rank #2 (Buy).

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Let’s delve into the factors that have been aiding the firm for a while now.

Business Strength: A. O. Smith has been benefiting from robust demand for residential water heaters and water treatment products in North America. The company expects water treatment sales in North America to increase 5-7% for 2023. Also, strong demand for commercial water treatment products bodes well for the Rest of the World segment. Within the segment, it expects sales in India to rise 15% year over year in 2023. Driven by strength in its businesses, management raised its 2023 adjusted earnings guidance to $3.70-$3.80 per share from $3.45-$3.60 expected earlier. The figure indicates 19% year-over-year growth at the mid-point.

Acquisition Benefits: AOS remains focused on acquiring businesses to gain access to new customers, regions and product lines. Its acquisition of Atlantic Filter in June 2022 boosted its position in the water treatment industry and strengthened its customer base in Florida and the adjacent regions.
Also, the buyout of Canada-based Giant Factories in October 2021 expanded its commercial and water heater offerings. In 2022, the Giant Factories acquisition added $94 million to its North America sales.

Shareholder-Friendly Policies: A. O. Smith remains committed to rewarding its shareholders through dividend payouts and share buybacks. For instance, in the first nine months of 2023, the firm rewarded shareholders with dividends of $135.7 million, reflecting an increase of 3.5% year over year. In the same period, AOS repurchased 2.4 million shares for approximately $161 million. Also, it hiked its quarterly dividend rate by 7% in October 2023.

Strong Liquidity Position: The company’s sound liquidity position adds to its strength. It exited the third quarter of 2023 with cash and cash equivalents of $342 million, higher than the current debt of $10 million. This implies that AOS has sufficient cash to meet its current debt obligations.

3 Other Promising Stocks

We have highlighted three other top-ranked stocks from the same space, namely Emerson Electric Co. EMR, Eaton Corporation ETN and Energous Corporation WATT. While Emerson sports a Zacks #1 Rank (Strong Buy), Eaton and Energous each carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Emerson delivered a trailing four-quarter average earnings surprise of 4.7%. In the past 60 days, the consensus estimate for EMR’s 2023 earnings has improved 6.2%. The stock has risen 1.4% in the past three months.

Eaton delivered a trailing four-quarter average earnings surprise of 4.2%. In the past 60 days, the Zacks Consensus Estimate for ETN’s 2023 earnings has increased 2.4%. The stock has rallied 14.5% in the past three months.

Energous has a trailing four-quarter average earnings surprise of 9.5%. Shares of WATT have increased 22.5% in the past three months.

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