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5 Reasons Why You Should Add A.O. Smith to Your Portfolio
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Commercial and residential water heating equipment manufacturer, A. O. Smith Corporation (AOS - Free Report) , has been one of the strongest contenders of the Zacks categorized Machinery-Electrical industry, proving its mettle despite formidable macro woes. Year to date, the company’s shares have recorded an average return of 24.9%, surpassing the Machinery Electric industry average of 23.0%.
With a string of earnings beats over the past 20 quarters, the company’s surprise history is quite spectacular. During the last reported quarter, it continued with its earnings streak, with earnings per share of 47 cents topping the Zacks Consensus Estimate by 4.4%. Also, the Zacks Rank #2 (Buy) company’s upbeat guidance for full-year 2016, signals bright days ahead.
Why should you buy?
Revenue Strength: Over the past five years, A.O. Smith’s revenues have been growing at a compounded annual growth rate (“CAGR”) of 8.2% from 2011–2015. Increasing volumes of residential and commercial water heaters and stellar demand of water heating and water treatment products in key end markets, including the U.S. and China, have proved conducive to revenue growth.
Going forward, driven by robust prospects in China and the U.S.-end markets, the company expects to improve its overall business in the range of 6–6.5% in U.S. dollars in 2016.
Earnings per Share Growth: The company has witnessed an impressive growth rate of 25.10% compared with the 8.9% mark of the industry, over the past five years. A.O. Smith has an impressive projected EPS growth of 16.3% for full-year 2016, in stark comparison to the industry’s decline of 5.3%.
Value Score Signals Future Upside: A.O. Smith’s value score of B implies the stock is reasonably valued, with more room to run. The Value Style Score is a comprehensive measure of all valuation metrics into one actionable score. This is a key measure that helps investors avoid ‘value traps’ and pick stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of ‘A’ or ‘B’, when combined with Zacks Rank #1 (Strong Buy) or #2, offer the best upside potential.
Impressive ROE: A.O. Smith’s Return on Equity (ROE) ratio is 13.30% compared with the industry average of 8.65%. This highlights that the company reinvests more efficiently compared to the industry.
Glance at Major Catalysts: A.O. Smith’s long-term growth potential and robust position in the defensive replacement market sets it apart from its peers. The company accounts for approximately 85% of North American water heater and boiler volumes, which are on the uptrend, improving its strength.
The company’s Lochinvar-branded products have experienced a solid growth, attributable to transition from lower-efficiency to higher-efficiency boilers, new product introduction and market share gain. Moving ahead in 2016 and assuming 4% growth for the Lochinvar-branded water heater sales, the company projects growth rate of 8% for total Lochinvar-branded products.
Also, the company’s enhancing foothold in China is a major positive. A.O. Smith’s business in China has grown significantly over the decade (28% CAGR sales from 2003–2014) with over 7,500 outlets in the nation. The company estimates its China operations to maintain momentum and experience about 15% growth rate in local currency, in 2016. Growth of overall water heater market in China is likely to be fueled by several factors, such as growth of households, thriving replacement market, geographic expansion, rise in water treatment and air purification products and improved product mix.
EnerSys has surpassed earnings estimates thrice in the trailing four quarters, with an average beat of 3%.
ABB has an excellent earnings surprise history, beating estimates all through in the trailing four quarters. It boasts an average positive surprise of 23.5%.
Middleby Corporation beat earnings in each of the trailing four quarters, resulting in an average surprise of 15.9%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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5 Reasons Why You Should Add A.O. Smith to Your Portfolio
Commercial and residential water heating equipment manufacturer, A. O. Smith Corporation (AOS - Free Report) , has been one of the strongest contenders of the Zacks categorized Machinery-Electrical industry, proving its mettle despite formidable macro woes. Year to date, the company’s shares have recorded an average return of 24.9%, surpassing the Machinery Electric industry average of 23.0%.
With a string of earnings beats over the past 20 quarters, the company’s surprise history is quite spectacular. During the last reported quarter, it continued with its earnings streak, with earnings per share of 47 cents topping the Zacks Consensus Estimate by 4.4%. Also, the Zacks Rank #2 (Buy) company’s upbeat guidance for full-year 2016, signals bright days ahead.
Why should you buy?
Revenue Strength: Over the past five years, A.O. Smith’s revenues have been growing at a compounded annual growth rate (“CAGR”) of 8.2% from 2011–2015. Increasing volumes of residential and commercial water heaters and stellar demand of water heating and water treatment products in key end markets, including the U.S. and China, have proved conducive to revenue growth.
Going forward, driven by robust prospects in China and the U.S.-end markets, the company expects to improve its overall business in the range of 6–6.5% in U.S. dollars in 2016.
Earnings per Share Growth: The company has witnessed an impressive growth rate of 25.10% compared with the 8.9% mark of the industry, over the past five years. A.O. Smith has an impressive projected EPS growth of 16.3% for full-year 2016, in stark comparison to the industry’s decline of 5.3%.
Value Score Signals Future Upside: A.O. Smith’s value score of B implies the stock is reasonably valued, with more room to run. The Value Style Score is a comprehensive measure of all valuation metrics into one actionable score. This is a key measure that helps investors avoid ‘value traps’ and pick stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of ‘A’ or ‘B’, when combined with Zacks Rank #1 (Strong Buy) or #2, offer the best upside potential.
Impressive ROE: A.O. Smith’s Return on Equity (ROE) ratio is 13.30% compared with the industry average of 8.65%. This highlights that the company reinvests more efficiently compared to the industry.
Glance at Major Catalysts: A.O. Smith’s long-term growth potential and robust position in the defensive replacement market sets it apart from its peers. The company accounts for approximately 85% of North American water heater and boiler volumes, which are on the uptrend, improving its strength.
The company’s Lochinvar-branded products have experienced a solid growth, attributable to transition from lower-efficiency to higher-efficiency boilers, new product introduction and market share gain. Moving ahead in 2016 and assuming 4% growth for the Lochinvar-branded water heater sales, the company projects growth rate of 8% for total Lochinvar-branded products.
Also, the company’s enhancing foothold in China is a major positive. A.O. Smith’s business in China has grown significantly over the decade (28% CAGR sales from 2003–2014) with over 7,500 outlets in the nation. The company estimates its China operations to maintain momentum and experience about 15% growth rate in local currency, in 2016. Growth of overall water heater market in China is likely to be fueled by several factors, such as growth of households, thriving replacement market, geographic expansion, rise in water treatment and air purification products and improved product mix.
Stocks to Consider
Some other favorably placed stocks in the broader sector include EnerSys (ENS - Free Report) , ABB Ltd. and Middleby Corp. (MIDD - Free Report) . While EnerSys sports a Zacks Rank #1 (Strong Buy), ABB Ltd. and Middleby Corp. carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
EnerSys has surpassed earnings estimates thrice in the trailing four quarters, with an average beat of 3%.
ABB has an excellent earnings surprise history, beating estimates all through in the trailing four quarters. It boasts an average positive surprise of 23.5%.
Middleby Corporation beat earnings in each of the trailing four quarters, resulting in an average surprise of 15.9%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>