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A. O. Smith Corporation (AOS), headquartered in Milwaukee, Wisconsin, manufactures and markets residential and commercial gas and electric water heaters, boilers, heat pumps, tanks, and water treatment products. With a market cap of $10.1 billion, the company specializes in offering innovative and energy-efficient solutions and products, which are developed and sold on a global platform.
Companies worth $10 billion or more are generally described as “large-cap stocks,” and AOS perfectly fits that description, with its market cap exceeding this mark, underscoring its size, influence, and dominance within the specialty industrial machinery industry. AOS’ strengths include its diversified portfolio, which hedges against market downturns, and its large scale, driving cost efficiencies. The company's strong brand equity, built on decades of reliability and innovation, translates into pricing power and customer loyalty. AOS’ financial resilience provides strategic flexibility, while its focus on R&D and innovation positions it well for emerging trends in energy-efficient and eco-friendly products. Its efficient supply chain and performance-driven culture further solidify its competitive edge.
Despite its notable strength, AOS slipped 21.6% from its 52-week high of $92.06, achieved on Sep. 27, 2024. Over the past three months, AOS stock gained 12.5%, underperforming the Nasdaq Composite’s ($NASX) 15% gains during the same time frame.
In the longer term, shares of AOS rose 5.8% on a YTD basis but dipped 14.1% over the past 52 weeks, underperforming NASX’s YTD gains of 16.9% and 25.6% returns over the last year.
To confirm the bullish trend, AOS has been trading above its 200-day moving average since mid-July, with minor fluctuations. The stock is trading above its 50-day moving average since early July.
A.O. Smith's underperformance is attributed to lower sales in China and North America, despite higher sales of boilers. Challenges in China's real estate market and a strong U.S. dollar impacting local currency revenues also contributed to the decline.
On Jul. 24, AOS shares closed up by 3.6% after reporting its Q2 results. Its EPS of $1.07 topped Wall Street expectations of $0.97. The company’s revenue was $1 billion, beating Wall Street forecasts of $990.9 million. AOS expects full-year adjusted EPS in the range of $3.70 to $3.90, and expects revenue in the range of $3.85 billion to $3.93 billion.
In the competitive arena of specialty industrial machinery, Illinois Tool Works Inc. (ITW) has taken the lead over AOS, showing resilience with 1.8% returns over the past 52 weeks, but lagging behind the stock with 3% gains on a YTD basis.
Wall Street analysts are reasonably bullish on AOS’ prospects. The stock has a consensus “Moderate Buy” rating from the 14 analysts covering it, and the mean price target of $80.09 suggests a potential upside of 11% from current price levels.
