Zacks Investment Research upgraded A.O. Smith Corporation (AOS), a leading water heaters and boilers company, to a Zacks Rank #1 (Strong Buy) on Oct 15.
Why the Upgrade?
A.O. Smith Corp. is upbeat about its performance for the remainder of 2014 and also fiscal 2015 banking on its strong presence in China. The company’s products have gained significant popularity in China as it has made considerable investments to become a leading premium water heater brand. From a macroeconomic perspective, the company intends to gain from the rapid urbanization in China (it is expected that about 60% of China’s population will urbanize by 2020) which will generate increased demand for apartments and thereby water heaters.
This apart, the company also expects to benefit from the recovery in the U.S. housing market. A.O. Smith demonstrated strong water heater industry growth in 2013, aided by improved levels of home completion and significant expansion of the replacement market. For 2014 as well, the company expects residential water heater volumes in the U.S. to rise to approximately 9 million units, including tankless, attributable to an increase in house construction. Further, the commercial water heater volumes are forecasted to increase to approximately 162,000 units.
Meanwhile, the company has a strong policy in place to return cash to shareholders in the form of share repurchases and dividends. It has paid steady dividends to shareholders and has also raised the dividend for three consecutive times. The last dividend hike of 25% was made on Feb 4, 2014.
Driven by all the afore-mentioned factors, the company now expects the midpoint of its earnings fiscal 2014 to increase 15% year over year.
In the last reported quarter (second quarter of 2014), A.O. Smith reported earnings of 66 cents a share which beat the Zacks Consensus Estimate by 10% and also rose up 27% year over year. Sales during the quarter were also at a record high of $595 million, reflecting 8% growth year over year.
A.O. Smith is confident of upbeat performance in fiscal 2015 and has raised its earnings guidance to $2.60 a share from $2.50 banking on this faith. Over the last 7 days, one of the seven analysts covering the stock has raised estimates for fiscal 2015 by 0.4% to $2.72.
Other Stocks to Consider
Other well-performing machine and general companies worth considering include Middleby Corp. (MIDD), Barnes Group Inc. (B) and CUI, Global Inc. (CUI). While Middleby sports a Zacks Rank #1 (Strong Buy), Barnes Group and CUI Global carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment