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Zacks Investment Research upgraded AO Smith Corp. (AOS - Snapshot Report) to a Zacks Rank #1 (Strong Buy) on Jun 22, 2013.

Why the Upgrade?

Things seem to be working in favor of AO Smith since this industrial electrical equipment maker reported its first quarter 2013 financial results on Apr 23, 2013. Adjusted earnings per share came in at 96 cents, way above the Zacks Consensus Estimate of 38 cents. Revenue grew 8.7% year over year on the back of a healthy performance in North America and Rest of the World.

Talking of margins, an increase of 342 basis points was seen in gross margin while operating margin grew 300 basis points year over year to 15.2%.

Management of AO Smith provided an encouraging outlook for 2013. The company’s businesses, especially its replacement water heater business in North America is expected to flourish. Adjusted earnings per share are expected to be within the $1.70-$1.78 range while GAAP earnings will fall within the $1.50-$1.58 per share range.

Further, at its Investor Meet on Jun 10, AO Smith provided its projections for 2015. Organic revenue is likely to approximate $2,425 million, suggesting annual organic revenue growth in excess of 7%. North American operations are expected to benefit from the U.S. housing market recovery and contribution from Lochinvar operations while sales from China/India are projected to grow from 25% in 2012 to 32% in 2015.

AO Smith further communicated that it has directed its capital spending towards organic growth, acquisition, dividend payments and share buybacks. For 2015, adjusted earnings per share are expected to range within the $2.15-$2.50 range, including a contribution of 35 cents from acquisitions and share buybacks.

Solid quarter results as well as impressive future outlook triggered a positive revision in earnings estimate for AO Smith. The Zacks Consensus Estimate for 2013 and 2014 are at $1.80 and $2.06, representing growth of 4.7% and 2.0%, respectively. Also, the company had a positive earnings surprise in the trailing four quarters, with the average being 13.3%.

Other Stocks to Consider

AO Smith Corp. currently has $3.4 billion market capitalization. Other stocks that are worth a look in the industry are Plug Power Inc. (PLUG - Snapshot Report), ABB Ltd. (ABB - Analyst Report) and Capstone Turbine Corp. (CPST - Snapshot Report).
 

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