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Valued at a market cap of $10.6 billion, A. O. Smith Corporation (AOS) manufactures and markets commercial and residential water heating equipment and water treatment products. The Milwaukee, Wisconsin-based company specializes in offering innovative and energy-efficient solutions and products and offers water heaters, boilers, commercial solar water heating systems, expansion tanks, swimming pools, and spa heaters, to name a few.
Shares of this water purification company have significantly lagged behind the broader market over the past 52 weeks. AOS has declined 3.2% over this time frame, while the broader S&P 500 Index ($SPX) has gained 31%. Moreover, on a YTD basis, the stock is down around 18%, compared to SPX’s nearly 25.2% gain.
Zooming in further, AOS’ underperformance becomes more evident when compared to the Industrial Select Sector SPDR Fund’s (XLI) 34.5% gain over the past 52 weeks and 25.1% return on a YTD basis.
On Oct. 22, shares of AOS declined marginally after its Q3 earnings release. The company’s adjusted EPS fell 8.9% year over year to $0.82 per share and came in line with the consensus estimates. Its revenue of $902.6 million decreased 4% on an annual basis but surpassed the Wall Street estimates of $901.6 million. The decrease in revenues and earnings was primarily driven by lower sales in China and decreased volumes of water heaters in North America. The company also lowered its full-year 2024 revenue and EPS guidance, which might have further impacted investor confidence.
For the current fiscal year, ending in December, analysts expect AOS’ EPS to marginally decline year over year to $3.78. The company’s earnings surprise history is mixed. It beat or met the consensus estimates in three of the last four quarters while missing on another occasion.
Among the 11 analysts covering the stock, the consensus rating is a “Hold,” which is based on two “Strong Buy,” eight “Hold,” and one “Strong Sell” rating.
The configuration is slightly less bullish than three months ago, with three analysts suggesting a “Strong Buy.”
On Oct. 23, Baird maintained a “Neutral” rating on AOS and reduced its price target to $81, which indicates a 10.3% potential upside from the current levels.
The mean price target of $82.88 represents a modest 12.8% upside from AOS’ current price levels. The Street-high price target of $91 suggests an upside potential of 23.9%.
