We have initiated coverage on A.O. Smith Corp. AOS, one of the leading global water heating equipment and water treatment products manufacturers, on Jun 19, 2015. While the company is expected to benefit from favorable high water heating and water treatment products demand in China, it is exposed to energy efficiency regulations changes by government regulatory bodies.
A.O. Smith primarily focuses on building a global platform via organic and inorganic growth to attain a leading position in key markets. Additionally, A.O. Smith follows a global enterprise resource planning system for redesigning and deployment of new processes and migration of the common information system across its plant.
Moreover, A.O. Smith’s business in China has grown significantly over the decade (28% CAGR sales from 2003-2014) with over 7,500 outlets in the nation. Additionally, the company has been leveraging to capitalize on the long-term investment opportunity in India, in which it forayed in 2006.
A.O.Smith, a Zacks Rank #3 (Hold) stock, witnessed strong first-quarter earnings results on the back of strong revenue escalations coupled with improving U.S. commercial water heater industry fundamentals. Encouragingly, the company had an average earnings beat of 6.25% in the last four quarters.
Echoing similar sentiments, over the last 60 days, the Zacks Consensus Estimate for 2015 and 2016 earnings per share increased by 1.4% and 1.5%, respectively to $2.80 and $3.29, respectively.
However, A.O.Smith bears risks from high capital expenditure, significant presence in Asian countries and dependency on the price of raw materials. In addition, the company operates in a highly competitive market and competes with renowned global brands like Whirlpool Corp. WHR, Electrolux AB ELUXY and Hitachi Ltd. HTHIY. These remain a major concern for the company.
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