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A. O. Smith (AOS) Up 28.4% YTD: What's Driving the Rally?

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A. O. Smith Corporation’s AOS performance has been impressive since the beginning of this year, which is evident from a 28.4% increase in its share price. Strength across its businesses, solid product offerings, robust liquidity position and shareholder-friendly policies boosted market sentiments for the company.

This Milwaukee, WI-based company with an $11.5-billion market capitalization belongs to the Zacks Manufacturing - Electronics industry. The company currently carries a Zacks Rank #2 (Buy).

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Year to date, A. O. Smith has outperformed its industry’s growth of 18.7% and the S&P 500’s rally of 16.6%.

Factors Favoring the Stock

A. O. Smith is witnessing strength in its North America segment, driven by robust demand for boilers, service parts and water treatment products in the United States. For 2021, the company expects to generate year-over-year sales growth of 13-14% from its water treatment business in North America. Also, it anticipates sales from boiler business in North America to grow in the low double-digit range. In addition, recovery of demand environment in China along with its focus on product developments will likely be beneficial in the quarters ahead. For the current year, it expects total revenues to increase in the range of 14-15%.

Also, the company’s Water-Right buyout (April 2019) enhanced its growth opportunities in the water treatment industry, particularly in the wholesale and independent dealer array.

Moreover, its stable liquidity position adds to its strength. Notably, at the end of first-quarter 2021, the company had a cash and marketable securities balance of $665.5 million. Moreover, in the quarter, its cash flow from operations totaled $104.4 million, reflecting an increase of 93% on a year-over-year basis. For 2021, it anticipates cash flow from operations to be $475-$500 million.

In addition, A. O. Smith remains focused on rewarding its shareholders through share repurchases and dividend payouts. For instance, in the first quarter, it paid out dividends worth $42.2 million to its shareholders and bought back shares worth $67 million. Also, its quarterly dividend rate was hiked by 8% in October 2020. In 2021, the company expects to repurchase $400 million worth of shares.

In the past 30 days, the Zacks Consensus Estimate for 2021 earnings has moved north from $2.67 to $2.69 on two upward estimate revisions against no downward movement being noticed. Also, the consensus estimate for 2022 earnings has been raised from $3.06 to $3.10 on two upward estimate revisions while there was no southbound movement in the same period.

Other Stocks to Consider

Some other top-ranked stocks from the same space are ABB Ltd ABB, Franklin Electric Co., Inc. FELE and SPX FLOW, Inc. FLOW, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ABB delivered an earnings surprise of 10.71% in the last reported quarter.

Franklin Electric delivered an earnings surprise of 51.28% in the last reported quarter.

SPX FLOW delivered an earnings surprise of 84.85% in the last reported quarter.

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A. O. Smith Corporation (AOS) : Free Stock Analysis Report

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