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Here's Why A. O. Smith (AOS) Should Grace Your Portfolio

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A. O. Smith Corporation (AOS - Free Report) is gaining from improving supply chains, strong residential water heater volumes and robust demand for commercial water treatment products. The company’s commitment to rewarding its shareholders through dividends and share buybacks is encouraging.

Let’s delve deeper to unearth the factors that make investing in this Zacks Rank #2 (Buy) stock a smart choice now.

Business Strength: With improving supply chains, higher shipments augur well for AOS’ growth. Robust demand for residential water heaters has been aiding the company’s North America segment. The company expects volumes in the residential water heater industry to increase approximately 4% year over year in 2023. A. O. Smith expects North American water treatment sales to increase 5-7% for 2023.

Strong demand for commercial water treatment products is boosting revenues in the Rest of the World segment. Within the segment, sales from India increased 13% year over year in the third quarter. China sales increased 9% in local currency. The company expects India sales to increase 15% year over year in 2023.

Bullish Guidance: Amid strong demand for residential water heaters, A. O. Smith raised its 2023 adjusted earnings guidance to $3.70-$3.80 per share compared with $3.45-$3.60 anticipated earlier. This indicates a year-over-year increase of 19% at the mid-point.

Rewards to Shareholders:  In October 2023, AOS hiked its dividend by 7% to 32 cents per share (annually: $1.28). The company has increased its dividend consecutively for more than 30 years. In the first nine months of 2023, the company paid dividends of $135.7 million, up 3.5% year over year. In the same period, the company repurchased 2.4 million shares for approximately $161 million. For 2023, the company expects to repurchase shares worth approximately $300 million. In January 2023, AOS’ board boosted the existing share buyback program by authorizing the repurchase of an additional 7.5 million shares.

Price Performance: Shares of A. O. Smith have outperformed its industry this year. The stock has rallied 33.4% year to date compared with the industry’s 15.4% increase.

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Northbound Estimate Revision: The Zacks Consensus Estimate for AOS’ 2023 and 2024 earnings has been revised upward by 5% and 3.6% in the past 60 days, respectively.

Other Stocks to Consider

Some other stocks worth considering from the Industrial Products sector are as follows:

Emerson Electric Co. (EMR - Free Report) sports a Zacks Rank #1 (Strong Buy). The company pulled off a trailing four-quarter earnings surprise of 4.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Emerson has an estimated earnings growth rate of 16.2% for the current fiscal year (ending September 2024). Shares of the company have gained 9.3% in the past six months.

ITT (ITT - Free Report) presently carries a Zacks Rank #2. The company pulled off a trailing four-quarter earnings surprise of 8%, on average.

ITT has an estimated earnings growth rate of 16.7% and 11.2% for 2023 and 2024, respectively. Shares of the company have gained 30.8% in the past six months.

See More Zacks Research for These Tickers

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Emerson Electric Co. (EMR) - free report >>

A. O. Smith Corporation (AOS) - free report >>

ITT Inc. (ITT) - free report >>

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