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Zacks Investment Research upgraded AO Smith Corp. (AOS - Snapshot Report) to a Zacks Rank #1 (Strong Buy) on Apr 9, 2013.

Why the Upgrade?

AO Smith has been performing well in the last few quarters and its solid financial health has raised optimism for a better future ahead. The industrial electrical equipment maker in its last reported quarter posted earnings per share from continuing operation of 91 cents that far exceeded the Zacks Consensus Estimate of 81 cents.

Revenue in the fourth quarter grew 10.2% year over year as sales from North American operations increased 6.2% while revenue from Rest of the World increased by 21.4%. Expenses also grew and offset partially the higher revenue generation in the quarter. Operating margin came in at 11.7% as against 9.9% in the year-ago quarter.

Management of AO Smith provided an encouraging outlook for 2013. Business, especially replacement water heater business, in North America is expected to flourish. Housing market recovery is likely to boost sales in U.S. and expansion in global markets to add to the growth momentum.

AO Smith reported upbeat results in its trailing four quarters having an average positive earnings surprise of 9.2%. Outlook remains bright for the company and, hence, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +5.3% for 2013 and +2.7% for 2014.    

Also, the earnings estimate for AO Smith has increased by 0.5% to $4.03 for 2014 while it has plummeted by the same magnitude to $3.39 for 2013.

Other Stocks to Consider

AO Smith Corp. is a $3.2 billion company. Other stocks to watch out for in the industry are ABB Ltd. (ABB - Analyst Report), Capstone Turbine Corp. (CPST - Snapshot Report) and Emerson Electric Co. (EMR - Analyst Report), each holding a Zacks Rank #2 (Buy).

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