The most recent earnings announcement A. O. Smith Corporation's (NYSE:AOS) released in December 2018 suggested that the business benefited from a strong tailwind, leading to a double-digit earnings growth of 50%. Today I want to provide a brief commentary on how market analysts predict A. O. Smith's earnings growth outlook over the next couple of years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Analysts' outlook for next year seems rather muted, with earnings rising by a single digit 2.6%. The growth outlook in the following year seems much more positive with rates arriving at double digit 11% compared to today’s earnings, and finally hitting US$531m by 2022.
While it is useful to be aware of the growth each year relative to today’s figure, it may be more insightful to evaluate the rate at which the earnings are growing on average every year. The pro of this approach is that we can get a bigger picture of the direction of A. O. Smith's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 5.7%. This means, we can presume A. O. Smith will grow its earnings by 5.7% every year for the next few years.
For A. O. Smith, I've put together three relevant factors you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is AOS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AOS is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AOS? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.