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A.O. Smith's (AOS) 20% YTD Gain Raises Questions of Longevity
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Shares of A. O. Smith Corporation (AOS - Free Report) have gained 19.5% in the year-to-date period, outperforming the industry’s 2.1% growth. The upside is primarily due to robust North American boiler and water treatment sales. Impressive returns to shareholders through dividends and share buybacks are also expected to have boosted its shares.
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A. O. Smith is benefiting from robust demand for commercial and residential boilers and water treatment products within the North America segment. Price increases are driving the segment’s revenues. AOS expects North American boiler sales to increase mid-single digits year over year, whereas North American water treatment sales are estimated to increase 5-7% year over year. Strong demand for water heating and water treating products in India is also aiding A. O. Smith.
A. O. Smith’s commitment to reward its shareholders through dividends and share buybacks is encouraging. In the first quarter, AOS paid dividends of $45.4 million, up 2.7% year over year. It also repurchased 0.8 million shares for $53.1 million in the same period. Approximately 7.1 million shares are yet to be repurchased under the existing share repurchase authorization.
For 2023, A. O. Smith expects to repurchase shares worth approximately $300 million. In January 2023, the company’s board boosted the existing share buyback program by authorizing to repurchase an additional 7.5 million shares.
Will the Uptrend in Shares Last?
Persistent weakness in the Rest of the Word segment due to lower consumer demand in China as a result of coronavirus-related headwinds is likely to be a drag on A. O. Smith’s performance. A slowdown in the manufacturing sector and recessionary fears signal uncertainties for all industrial companies, and AOS is no exception.
Amid demand softness and a general weakness in the economy, A. O. Smith has provided a conservative outlook for 2023. The company expects sales to either increase or decrease by up to 2%. It expects residential water heater industry volumes to be approximately flat year over year. Despite the prevalent headwinds, shares of the company are likely to hold up well on continued demand for boilers and water treatment products.
Zacks Rank & Key Picks
A. O. Smith presently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks within the broader Industrial Products sector are as follows:
Flowserve has an estimated earnings growth rate of 64.5% for the current year. Shares of the company have gained 8.9% in a year.
Graco (GGG - Free Report) currently flaunts a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 7.9%, on average.
Graco has an estimated earnings growth rate of 16.4% for the current year. Shares of the company have rallied 23.9% in a year.
Ingersoll Rand (IR - Free Report) presently sports a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 12.6%, on average.
Ingersoll Rand has an estimated earnings growth rate of 14.8% for the current year. Shares of the company have jumped 23% in a year.
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A.O. Smith's (AOS) 20% YTD Gain Raises Questions of Longevity
Shares of A. O. Smith Corporation (AOS - Free Report) have gained 19.5% in the year-to-date period, outperforming the industry’s 2.1% growth. The upside is primarily due to robust North American boiler and water treatment sales. Impressive returns to shareholders through dividends and share buybacks are also expected to have boosted its shares.
Image Source: Zacks Investment Research
A. O. Smith is benefiting from robust demand for commercial and residential boilers and water treatment products within the North America segment. Price increases are driving the segment’s revenues. AOS expects North American boiler sales to increase mid-single digits year over year, whereas North American water treatment sales are estimated to increase 5-7% year over year. Strong demand for water heating and water treating products in India is also aiding A. O. Smith.
A. O. Smith’s commitment to reward its shareholders through dividends and share buybacks is encouraging. In the first quarter, AOS paid dividends of $45.4 million, up 2.7% year over year. It also repurchased 0.8 million shares for $53.1 million in the same period. Approximately 7.1 million shares are yet to be repurchased under the existing share repurchase authorization.
For 2023, A. O. Smith expects to repurchase shares worth approximately $300 million. In January 2023, the company’s board boosted the existing share buyback program by authorizing to repurchase an additional 7.5 million shares.
Will the Uptrend in Shares Last?
Persistent weakness in the Rest of the Word segment due to lower consumer demand in China as a result of coronavirus-related headwinds is likely to be a drag on A. O. Smith’s performance. A slowdown in the manufacturing sector and recessionary fears signal uncertainties for all industrial companies, and AOS is no exception.
Amid demand softness and a general weakness in the economy, A. O. Smith has provided a conservative outlook for 2023. The company expects sales to either increase or decrease by up to 2%. It expects residential water heater industry volumes to be approximately flat year over year. Despite the prevalent headwinds, shares of the company are likely to hold up well on continued demand for boilers and water treatment products.
Zacks Rank & Key Picks
A. O. Smith presently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks within the broader Industrial Products sector are as follows:
Flowserve (FLS - Free Report) currently sports a Zacks Rank #1 (Strong Buy). The company pulled off a trailing four-quarter earnings surprise of 2.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Flowserve has an estimated earnings growth rate of 64.5% for the current year. Shares of the company have gained 8.9% in a year.
Graco (GGG - Free Report) currently flaunts a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 7.9%, on average.
Graco has an estimated earnings growth rate of 16.4% for the current year. Shares of the company have rallied 23.9% in a year.
Ingersoll Rand (IR - Free Report) presently sports a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 12.6%, on average.
Ingersoll Rand has an estimated earnings growth rate of 14.8% for the current year. Shares of the company have jumped 23% in a year.