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Here's Why You Should Consider Investing in A. O. Smith (AOS)

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A. O. Smith Corporation (AOS - Free Report) currently boasts robust prospects on strength across its businesses, acquired asset, focus on debt reduction and shareholder-friendly policies.

Notably, the Zacks Rank #2 (Buy) company has a market capitalization of $11.1 billion. In the past six months, the stock has gained 24.4% compared with the industry’s growth of 21.5%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Let’s delve into the factors that make investment in the company a smart choice at the moment.

Business Strength: A. O. Smith has been witnessing robust demand for boilers, service parts and water treatment products in the United States. For 2021, the company anticipates sales to increase 13-14% on a year-over-year basis from its water treatment business in North America. Also, sales from its boiler business in North America are expected to grow in the low-double digit range. In addition, higher demand in China, along with its focus on investments in product developments, will likely act as tailwinds in the quarters ahead. For 2021, the company projects total revenues to grow in the range of 14-15%.

Acquisition Benefits: The company believes in strengthening its businesses through acquisitions. Notably, its Water-Right buyout (April 2019) has boosted its growth opportunities in the water treatment industry, particularly in the wholesale and independent dealer array.

Debt Reduction: A. O. Smith remains focused on reducing its debt level. Exiting first-quarter 2021, the company successfully reduced its total debt level by 6% sequentially to $106.4 million. Its cash and cash equivalents (totaled $578.5 million at first-quarter end) were sufficient to meet its obligations.

Rewards to Shareholders: The company is committed to rewarding shareholders through share repurchases and dividend payouts. In first-quarter 2021, the company paid out dividends worth $42.2 million to shareholders besides repurchasing 1.1 million shares for $67 million. In addition, it hiked its quarterly dividend rate by 8% in October 2020. In 2021, it expects to repurchase $400 million worth of shares.

In the past 60 days, the Zacks Consensus Estimate for its 2021 earnings has trended up from $2.53 to $2.68 on eight upward estimate revisions against none downward. Also, the consensus estimate for its 2022 earnings has moved up from $2.82 to $3.06 on six upward estimate revisions against none downward.

Other Key Picks

Some other top-ranked stocks from the same space are Emerson Electric Co. (EMR - Free Report) , Eaton Corporation, plc (ETN - Free Report) and Regal Beloit Corporation (RBC - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Emerson delivered an earnings surprise of 7.78% in the last reported quarter.

Eaton delivered an earnings surprise of 15.20% in the last reported quarter.

Regal Beloit delivered an earnings surprise of 17.86% in the last reported quarter.

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