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1. Company Snapshot

1.a. Company Description

A.O.Smith Corporation manufactures and markets residential and commercial gas, heat pump and electric water heaters, boilers, tanks, and water treatment products in North America, China, Europe, and India.


It operates through two segments, North America and Rest of World.The company offers water heaters for residences, restaurants, hotels and motels, office buildings, laundries, car washes, and small businesses; commercial boilers for hospitals, schools, hotels, and other large commercial buildings, as well as residential boilers for homes, apartments, and condominiums; and water treatment products comprising point-of-entry water softeners, well water solutions, and whole-home water filtration products, on-the-go filtration bottles, point-of-use carbon, and reverse osmosis products for residences, restaurants, hotels, and offices.It also provides food and beverage filtration products; expansion tanks, commercial solar water heating systems, swimming pool and spa heaters, and related products and parts; and heat pumps, electric wall-hung, gas tankless, combi-boiler, heat pump and solar water heaters.


The company offers its products primarily under the A.O.Smith, State, Lochinvar, and water softener brands.


It distributes its products through independent wholesale plumbing distributors, as well as through retail channels consisting of hardware and home center chains, and manufacturer representative firms; and offers Aquasana branded products directly to consumers through e-commerce, as well as other online retailers.A.O.


Smith Corporation was founded in 1874 and is headquartered in Milwaukee, Wisconsin.

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1.b. Last Insights on AOS

A.O. Smith Corporation faced negative drivers, including decreased holdings by institutional investors, such as IFP Advisors Inc. (58.6%) and Ethic Inc. (6.4%). The company also faced headwinds from weak China demand and supply-chain pressures. Despite beating Q3 earnings and revenue estimates, with quarterly earnings of $0.94 per share, the company's performance was impacted by these challenges. A.O. Smith's Q3 results were marked by steady estimates, but concerns surrounding its business conditions persisted. (Source: Zacks)

1.c. Company Highlights

2. A.O. Smith Posts Strong Q3 Earnings with Revenue Growth and Margin Expansion

A.O. Smith delivered a robust third quarter with sales reaching $943 million, a 4% year-over-year increase, and EPS of $0.94, a 15% increase over 2024. The company's North America segment drove this growth, with sales increasing 6% due to pricing actions and strong commercial water heater and boiler volumes, resulting in a 110 basis point margin expansion. The EPS beat analyst estimates of $0.89, demonstrating the company's solid operational performance.

Publication Date: Nov -13

📋 Highlights
  • North America Sales Growth:: Achieved 6% year-over-year sales growth ($943M total) driven by pricing actions and commercial water heater/boiler volumes.
  • EPS Increase:: Earnings per share rose 15% to $0.94, with narrowed 2025 EPS guidance of $3.70–$3.85 amid tariff headwinds.
  • Margin Expansion:: North America segment margin expanded 110 bps; China, despite 12% local sales decline, gained 90 bps via restructuring/cost cuts.
  • Free Cash Flow:: Projected $500M in 2025 free cash flow, supporting dividends, buybacks, and strategic acquisitions.
  • China Strategic Review:: Sales down 10% YoY, with fourth-quarter volume expected to rise due to holidays, but long-term strategy remains under evaluation.

Segment Performance

The North America segment was the highlight, with sales growth driven by commercial water heaters and boilers. In contrast, China sales decreased 12% in local currency due to economic challenges and reduced government subsidy programs. However, the company achieved 90 basis points of margin expansion in China through restructuring initiatives and cost-saving measures.

Operational Highlights and Outlook

The company is focusing on operational excellence and innovation, with initiatives such as the test water recirculation system and glass enamel reuse process. A.O. Smith narrowed its 2025 EPS outlook to a range of $3.70 to $3.85 per share and expects to generate free cash flow of approximately $500 million in 2025. The company's FLEX commercial water heater is performing well, and it has an active pipeline for strategic acquisitions.

Valuation and Growth Prospects

With a P/E Ratio of 17.63 and an ROE of 28.56%, the company's valuation appears reasonable considering its growth prospects. Analysts estimate next year's revenue growth at 3.4%. The company's commitment to returning capital to shareholders is evident in its dividend yield of 2.08% and a history of increasing dividends for 32 years. The Free Cash Flow Yield is 6.05%, indicating a strong ability to generate cash.

Challenges and Risks

The company faces challenges, including tariff headwinds and a weak residential construction market. China sales were impacted by economic challenges and reduced government subsidies. However, A.O. Smith is working to level load its production and has seen share gains in the North America water heater market. The company's strategic review of its China business is ongoing, and it is assessing potential restructuring initiatives.

3. NewsRoom

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Fisher Asset Management LLC Cuts Stock Position in A. O. Smith Corporation $AOS

Dec -06

Source: defenseworld.net

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Diego Pavia wins the 2025 Johnny Unitas Golden Arm Award® Presented by A. O. Smith

Dec -05

Source: globenewswire.com

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Why Investors Should Retain A. O. Smith Stock in Portfolio Now

Dec -01

Source: zacks.com

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Best Dividend Aristocrats For December 2025

Nov -29

Source: seekingalpha.com

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Boston Partners Trims Stock Position in A. O. Smith Corporation $AOS

Nov -29

Source: defenseworld.net

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ABN Amro Investment Solutions Makes New $3.77 Million Investment in A. O. Smith Corporation $AOS

Nov -14

Source: defenseworld.net

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A. O. Smith to Acquire Leonard Valve Company, a Leader in Water Temperature and Flow Solutions

Nov -12

Source: prnewswire.com

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Teacher Retirement System of Texas Increases Stock Position in A. O. Smith Corporation $AOS

Nov -04

Source: defenseworld.net

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (5.56%)

6. Segments

Water Heaters and Related Parts

Expected Growth: 5.5%

A. O. Smith Corporation's Water Heaters and Related Parts segment growth of 5.5% is driven by increasing demand for energy-efficient products, rising replacement rates, and growing construction activities. Additionally, the company's focus on innovation, expanding distribution channels, and strategic acquisitions contribute to its growth momentum.

Water Heater and Water Treatment Products

Expected Growth: 5.8%

A. O. Smith's Water Heater and Water Treatment Products segment growth of 5.8% is driven by increasing demand for energy-efficient and eco-friendly products, rising replacement rates, and growing adoption in emerging markets. Additionally, the company's focus on innovation, strategic acquisitions, and expanding distribution channels contribute to its growth momentum.

Boilers and Related Parts

Expected Growth: 5.2%

A. O. Smith Corporation's Boilers and Related Parts segment growth of 5.2% is driven by increasing demand for energy-efficient solutions, rising replacement rates in the residential sector, and growing commercial construction activities. Additionally, the company's focus on innovation, strategic acquisitions, and expanding distribution channels contribute to its growth momentum.

Water Treatment Products

Expected Growth: 5.6%

A. O. Smith Corporation's Water Treatment Products segment growth of 5.6% is driven by increasing demand for clean water, stringent government regulations, and rising adoption of water conservation measures. Additionally, growing concerns over water-borne diseases and aging infrastructure are fueling demand for efficient water treatment solutions.

Inter-segment Sales

Expected Growth: 4.8%

A. O. Smith Corporation's 4.8% inter-segment sales growth is driven by increasing demand for water heaters and boilers in the residential and commercial markets, coupled with the company's strategic expansion into emerging markets, particularly in Asia. Additionally, the company's focus on innovation, product diversification, and operational efficiency have contributed to the growth.

7. Detailed Products

Residential Water Heaters

A. O. Smith Corporation offers a wide range of residential water heaters, including gas, electric, and heat pump models, designed to provide hot water for households.

Commercial Water Heaters

The company provides commercial water heaters for hotels, hospitals, schools, and other institutions, offering high-efficiency and reliable hot water solutions.

Boilers

A. O. Smith Corporation manufactures a variety of boilers, including gas, oil, and electric models, for residential and commercial applications.

Water Treatment Solutions

The company offers a range of water treatment solutions, including water softeners, filters, and purifiers, to improve water quality and taste.

Tankless Water Heaters

A. O. Smith Corporation provides tankless water heaters, which heat water only as needed, offering energy efficiency and space-saving design.

Heat Pump Water Heaters

The company offers heat pump water heaters, which use heat from the air to heat water, providing high efficiency and energy savings.

8. A. O. Smith Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

A. O. Smith Corporation faces moderate threat from substitutes, as customers have limited alternatives for its water heaters and boilers. However, the company's strong brand reputation and quality products help mitigate this threat.

Bargaining Power Of Customers

A. O. Smith Corporation's customers have limited bargaining power due to the company's strong market position and diverse customer base. This reduces the risk of customers negotiating lower prices or demanding better services.

Bargaining Power Of Suppliers

A. O. Smith Corporation's suppliers have moderate bargaining power due to the company's dependence on a few key suppliers for raw materials. However, the company's long-term relationships with suppliers help mitigate this risk.

Threat Of New Entrants

A. O. Smith Corporation faces a low threat from new entrants due to the high barriers to entry in the water heater and boiler industry. The company's established brand reputation, extensive distribution network, and significant capital requirements for new entrants make it difficult for new companies to enter the market.

Intensity Of Rivalry

A. O. Smith Corporation operates in a highly competitive industry, with several established players competing for market share. The company's strong brand reputation, quality products, and extensive distribution network help it maintain its market position despite intense rivalry.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 7.76%
Debt Cost 10.19%
Equity Weight 92.24%
Equity Cost 10.25%
WACC 10.24%
Leverage 8.41%

11. Quality Control: A. O. Smith Corporation passed 8 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Watts Water Technologies

A-Score: 5.9/10

Value: 2.4

Growth: 6.9

Quality: 8.0

Yield: 1.0

Momentum: 8.0

Volatility: 9.0

1-Year Total Return ->

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Stock-Card
Donaldson

A-Score: 5.6/10

Value: 2.6

Growth: 5.8

Quality: 6.7

Yield: 2.0

Momentum: 7.0

Volatility: 9.3

1-Year Total Return ->

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Stock-Card
A O Smith

A-Score: 5.6/10

Value: 3.9

Growth: 5.8

Quality: 8.0

Yield: 4.0

Momentum: 3.0

Volatility: 8.7

1-Year Total Return ->

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ITT

A-Score: 5.4/10

Value: 2.4

Growth: 6.7

Quality: 7.2

Yield: 2.0

Momentum: 7.0

Volatility: 7.3

1-Year Total Return ->

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CSW Industrials

A-Score: 4.9/10

Value: 2.4

Growth: 8.2

Quality: 7.9

Yield: 0.0

Momentum: 2.0

Volatility: 8.7

1-Year Total Return ->

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Nordson

A-Score: 4.7/10

Value: 2.4

Growth: 5.0

Quality: 6.8

Yield: 2.0

Momentum: 3.0

Volatility: 8.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

68.03$

Current Price

68.03$

Potential

-0.00%

Expected Cash-Flows