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Here's Why You Should Invest in A. O. Smith (AOS) Stock Now

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Zacks Equity Research
·3 min read
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A. O. Smith Corporation AOS is well poised for growth, courtesy of its solid product portfolio, strength in its businesses, acquired assets as well as a sound capital-deployment strategy.

Notably, the Zacks Rank #2 (Buy) company has a market capitalization of $11.2 billion. In the past three months, it has appreciated 26.5% compared with the industry’s growth of 12.3%.

Let’s delve into the factors that make investment in the company a smart choice at the moment.

Strength in Businesses: Strength in A. O. Smith’s North America segment, owing to robust demand for water treatment products and residential water heater products in the United States, is likely to prove beneficial for its top-line performance in the quarters ahead. For 2021, it expects sales growth of 13-14% from its water treatment business in North America on a year-over-year basis. Also, for the year, it anticipates sales from boiler business to grow in the mid-single digit range in North America. In addition, growth in demand environment for its products in China is likely to prove beneficial.

Acquisition Benefits: The company believes in strengthening and expanding its businesses through acquisitions. Notably, the company’s Water-Right buyout (April 2019) has been enhancing its growth opportunities in the water treatment industry, especially in the wholesale and independent dealer array. Notably, the Water-Right business generated incremental sales in 2020.

Rewards to Shareholders: A. O. Smith is committed to rewarding shareholders through share repurchases and dividend payouts. For instance, in 2020, the company paid out dividends worth $158.7 million to shareholders besides repurchasing 1.3 million shares for $56.7 million. In addition, it announced an 8% hike in its quarterly dividend rate in October 2020. In 2021, it expects to repurchase $400 million worth of shares through a combination of open market purchases and 10b5-1 program.

Debt Reduction: A. O. Smith remains focused on reducing its debt level. For instance, exiting the fourth-quarter 2020, the company successfully reduced its total debt level by 0.6% sequentially to $113.2 million. Notably, its cash and cash equivalents (totaled $573.1 million at fourth-quarter end) were sufficient to meet its obligations.

In the past 60 days, the Zacks Consensus Estimate for its 2021 earnings has trended up from $2.48 to $2.53 on three upward estimate revisions against none downward. Also, the consensus estimate for its 2022 earnings has moved up from $2.77 to $2.83 on two upward estimate revisions against none downward.

Other Key Picks

Some other top-ranked stocks from the same space are ABB Ltd ABB, Eaton Corporation plc ETN and Regal Beloit Corporation RBC, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ABB delivered a positive earnings surprise of 54.17%, on average, in the trailing four quarters.

Eaton delivered a positive earnings surprise of 13.69%, on average, in the trailing four quarters.

Regal Beloit delivered a positive earnings surprise of 31.56%, on average, in the trailing four quarters.

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