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.
Will A. O. Smith be Able to Sustain Momentum Amid Headwinds?
Read MoreHide Full Article
A. O. Smith Corporation (AOS - Free Report) has impressed investors with its recent earnings streak, having surpassed estimates thrice in the four trailing quarters. The company’s share price increase reflects its impressive performance, exhibiting investor optimism over the stock.
In the past three months, the Zacks Rank #3 (Hold) stock has gained 15.2%, outperforming the industry’s growth of 4.4%.
We believe that its notable traction across markets will drive growth in the upcoming quarters.
Factors to Consider
A. O. Smith’s leading position in water heating equipment and water treatment product markets bodes well for future growth. Notably, the company’s defensive replacement market, which accounts for approximately 85% of the North American water heater and boiler volumes, has been witnessing an uptrend. For 2019, it believes that the water heater volumes in the U.S. residential industry will shoot up 100,000-150,000 units. The volume growth will be largely driven by new construction activities and expansion of replacement demand, as well as continued growth in tankless units.
Also, the company dedicatedly follows a capital deployment strategy and continually rewards its shareholders via repurchases and dividend increases. Notably, in 2018, it bought back 4 million shares for $203 million. At the end of 2018, it had roughly 6 million shares remaining under repurchase authority. Notably, the five-year compounded annual growth rate of A.O. Smith's dividend is approximately 30%.
However, higher selling, general and administrative expenses remain a headwind. Notably, higher advertising costs related to brand building, coupled with developmental and engineering costs associated with new products are driving the company's operating expenses in China. Also, it expects to incur a loss of $2-$3 million in 2019 in India.
Although A. O. Smith’s expansion initiatives hold good for long-term growth, the high capital expenditure incurred will negatively impact its short-term earnings. Also, corporate expenses are likely to be $50 million in 2019, higher than $47 million in 2018, primarily on account of inflation. These actions are expected to put pressure on its profitability in the near term. In addition, for 2019, the company anticipates unfavorable movement in Chinese currency to have an adverse impact of about 3-6% on revenues.
Axon Enterprise delivered average earnings surprise of 391.67% in the trailing four quarters.
Pioneer Power Solutions pulled off average positive earnings surprise of 208.48% in the trailing four quarters.
Dover delivered average earnings surprise of 6.59% in the trailing four quarters.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Will A. O. Smith be Able to Sustain Momentum Amid Headwinds?
A. O. Smith Corporation (AOS - Free Report) has impressed investors with its recent earnings streak, having surpassed estimates thrice in the four trailing quarters. The company’s share price increase reflects its impressive performance, exhibiting investor optimism over the stock.
In the past three months, the Zacks Rank #3 (Hold) stock has gained 15.2%, outperforming the industry’s growth of 4.4%.
We believe that its notable traction across markets will drive growth in the upcoming quarters.
Factors to Consider
A. O. Smith’s leading position in water heating equipment and water treatment product markets bodes well for future growth. Notably, the company’s defensive replacement market, which accounts for approximately 85% of the North American water heater and boiler volumes, has been witnessing an uptrend. For 2019, it believes that the water heater volumes in the U.S. residential industry will shoot up 100,000-150,000 units. The volume growth will be largely driven by new construction activities and expansion of replacement demand, as well as continued growth in tankless units.
Also, the company dedicatedly follows a capital deployment strategy and continually rewards its shareholders via repurchases and dividend increases. Notably, in 2018, it bought back 4 million shares for $203 million. At the end of 2018, it had roughly 6 million shares remaining under repurchase authority. Notably, the five-year compounded annual growth rate of A.O. Smith's dividend is approximately 30%.
However, higher selling, general and administrative expenses remain a headwind. Notably, higher advertising costs related to brand building, coupled with developmental and engineering costs associated with new products are driving the company's operating expenses in China. Also, it expects to incur a loss of $2-$3 million in 2019 in India.
Although A. O. Smith’s expansion initiatives hold good for long-term growth, the high capital expenditure incurred will negatively impact its short-term earnings. Also, corporate expenses are likely to be $50 million in 2019, higher than $47 million in 2018, primarily on account of inflation. These actions are expected to put pressure on its profitability in the near term. In addition, for 2019, the company anticipates unfavorable movement in Chinese currency to have an adverse impact of about 3-6% on revenues.
Stocks to Consider
Some better-ranked stocks from Zacks Industrial Products sector are Axon Enterprise, Inc , Pioneer Power Solutions, Inc. (PPSI - Free Report) and Dover Corporation (DOV - Free Report) . While Axon Enterprise sports a Zacks Rank #1 (Strong Buy), Pioneer Power Solutions and Dover carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Axon Enterprise delivered average earnings surprise of 391.67% in the trailing four quarters.
Pioneer Power Solutions pulled off average positive earnings surprise of 208.48% in the trailing four quarters.
Dover delivered average earnings surprise of 6.59% in the trailing four quarters.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>