We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
A. O. Smith (AOS) Exhibits Bright Prospects, Risks Persist
Read MoreHide Full Article
A. O. Smith Corporation (AOS - Free Report) has been benefiting from the strong demand for boilers and water treatment products, supported by its strong retail and direct-to-consumer sales channel. For 2022, the company anticipates year-over-year sales growth of 13-14% from its water treatment business in North America, while sales from its boiler business in North America are expected to increase by 18-20%. Also, improvement in demand across all major product categories in China, its product development initiatives and solid price management capabilities are likely to be beneficial in the quarters ahead.
The company’s acquisition of Giant Factories (October 2021) expanded its commercial and water heater offerings. In first-quarter 2022, the Giant Factories buyout added $32 million to sales of the North America segment. AOS anticipates the buyout to be accretive to its earnings per share in 2022. Also, the acquisition of Master Water Conditioning Corporation (July 2021) boosted its water treatment business in North America.
Its ability to generate strong cash flows enhances its strength. Exiting first-quarter 2022, AOS’ cash and cash equivalents were $405.8 million, which were sufficient to meet its total debt obligations of $295.4 million. In the first three months of 2022, the company used $44.2 million and $107.9 million for paying out dividends and repurchasing shares, respectively. In October 2021, it hiked the quarterly dividend rate by 8%.
However, escalating costs and expenses remain major concerns for the company. In first-quarter 2022, its cost of sales increased 32.4%, and selling, general and administrative expenses rose 8%, on a year-over-year basis. Also, high capital expenditure might affect its short-term liquidity. For 2022, it expects capital expenditure of $75-$80 million.
Raw-material inflation, high logistic costs and a shortage of labor are likely to affect the company’s performance in the near term. In the first quarter, its gross profit margin fell 260 basis points year over year owing to higher steel and other material costs.
Image Source: Zacks Investment Research
The Zacks Rank #3 (Hold) company’s shares have lost 10.6% compared with 4.7% decline recorded by the industry in the past three months.
Key Picks
Some better-ranked stocks from the same space are discussed below.
AZZ’s earnings estimates increased 12.6% for fiscal 2022 (ending February 2022) in the past 60 days. Its shares have lost 8.1% in the past three months.
Graphic Packaging Holding Company (GPK - Free Report) presently sports a Zacks Rank #1. Its earnings surprise in the last four quarters was 7.2%, on average.
In the past 60 days, GPK’s earnings estimates have increased 7.6% for 2022. The stock has gained 12.7% in the past three months.
Ferguson plc (FERG - Free Report) presently carries a Zacks Rank of 2 (Buy). FERG delivered a trailing four-quarter earnings surprise of 14.2%, on average.
Earnings estimates of Ferguson have been stable for fiscal 2022 (ending July 2022) in the past 60 days. FERG’s shares have declined 16.7% in the past three months.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
A. O. Smith (AOS) Exhibits Bright Prospects, Risks Persist
A. O. Smith Corporation (AOS - Free Report) has been benefiting from the strong demand for boilers and water treatment products, supported by its strong retail and direct-to-consumer sales channel. For 2022, the company anticipates year-over-year sales growth of 13-14% from its water treatment business in North America, while sales from its boiler business in North America are expected to increase by 18-20%. Also, improvement in demand across all major product categories in China, its product development initiatives and solid price management capabilities are likely to be beneficial in the quarters ahead.
The company’s acquisition of Giant Factories (October 2021) expanded its commercial and water heater offerings. In first-quarter 2022, the Giant Factories buyout added $32 million to sales of the North America segment. AOS anticipates the buyout to be accretive to its earnings per share in 2022. Also, the acquisition of Master Water Conditioning Corporation (July 2021) boosted its water treatment business in North America.
Its ability to generate strong cash flows enhances its strength. Exiting first-quarter 2022, AOS’ cash and cash equivalents were $405.8 million, which were sufficient to meet its total debt obligations of $295.4 million. In the first three months of 2022, the company used $44.2 million and $107.9 million for paying out dividends and repurchasing shares, respectively. In October 2021, it hiked the quarterly dividend rate by 8%.
However, escalating costs and expenses remain major concerns for the company. In first-quarter 2022, its cost of sales increased 32.4%, and selling, general and administrative expenses rose 8%, on a year-over-year basis. Also, high capital expenditure might affect its short-term liquidity. For 2022, it expects capital expenditure of $75-$80 million.
Raw-material inflation, high logistic costs and a shortage of labor are likely to affect the company’s performance in the near term. In the first quarter, its gross profit margin fell 260 basis points year over year owing to higher steel and other material costs.
Image Source: Zacks Investment Research
The Zacks Rank #3 (Hold) company’s shares have lost 10.6% compared with 4.7% decline recorded by the industry in the past three months.
Key Picks
Some better-ranked stocks from the same space are discussed below.
AZZ Inc. (AZZ - Free Report) presently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Its earnings surprise for the last four quarters was 22.3%, on average.
AZZ’s earnings estimates increased 12.6% for fiscal 2022 (ending February 2022) in the past 60 days. Its shares have lost 8.1% in the past three months.
Graphic Packaging Holding Company (GPK - Free Report) presently sports a Zacks Rank #1. Its earnings surprise in the last four quarters was 7.2%, on average.
In the past 60 days, GPK’s earnings estimates have increased 7.6% for 2022. The stock has gained 12.7% in the past three months.
Ferguson plc (FERG - Free Report) presently carries a Zacks Rank of 2 (Buy). FERG delivered a trailing four-quarter earnings surprise of 14.2%, on average.
Earnings estimates of Ferguson have been stable for fiscal 2022 (ending July 2022) in the past 60 days. FERG’s shares have declined 16.7% in the past three months.