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A.O. Smith (AOS) Increases Share Buyback Limit for 2019

Zacks Equity Research

A.O. Smith Corporation AOS pleased its shareholders yesterday, with the announcement of 50% increase in the share buyback program set for this year. Its shares recorded 2.05% gain, closing the trading session at $41.33 per share.

As disclosed, the water heating equipment manufacturer’s board of directors added 3 million shares to its existing share buyback authorization. This move raised its total approved buyback limit to approximately 7.6 million shares.

For 2019, the company’s authorization limit was increased from the previously stated $200-$300 million. The buyback activities will be carried out, using the 10b5-1 plan and opportunistic repurchases in the open market.

We believe that this move reflects A.O. Smith’s shareholder-friendly policies and strong cash position.

Effective Policies

It is worth mentioning here that A.O. Smith uses capital for boosting organic growth, making acquisitions and rewarding shareholders (via dividends and share buybacks). In the first quarter of 2019, the company repurchased 0.9 million shares for $45.6 million while paid $37.1 million as dividends. Also, cash and cash equivalents were $337.8 million ending the quarter.

Earlier, the company planned to return approximately $350 million to shareholders through dividend payments and share repurchases.

Zacks Rank & Stocks to Consider

With a market capitalization of nearly $6.9 billion, the company currently carries a Zacks Rank #3 (Hold). Strength in the defensive replacement business, stronger demand for popular brands and shareholder-friendly policies are boons for A.O. Smith. However, forex woes, rising steel prices and challenges in China business are concerns.

In the past three months, shares of the company have decreased 20.5% as against the industry’s decline of 10.2%.

In the past 60 days, the Zacks Consensus Estimate for A.O. Smith’s earnings has declined 0.7% to $2.70 for 2019 and 0.7% to $2.96 for 2020. On a year-over-year basis, estimates reflect growth of 3.5% for 2019 and 9.4% for 2020.

A. O. Smith Corporation Price and Consensus


A. O. Smith Corporation Price and Consensus

A. O. Smith Corporation price-consensus-chart | A. O. Smith Corporation Quote

Some better-ranked stocks in the Zacks Industrial Products sector are AZZ Inc. AZZ, Tetra Tech, Inc. TTEK and Roper Technologies, Inc. ROP. All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, earnings estimates for all these three stocks have improved for the current year. Further, average earnings surprise for the last four quarters was positive 6.65% for AZZ, 8.22% for Tetra Tech and 8.43% for Roper.

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