A. O. Smith Corporation (AOS) | Investment Case

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's recent performance was driven by record earnings per share, supported by margin improvement in both operating segments, strong free cash flow generation, and capital returns to shareholders. The company's North America segment margin improved by 20 basis points, while sales reached $3.8 billion in 2025, a slight increase over 2024. Additionally, A.O. Smith's executives outlined a solid 2026 outlook, discussed a newly completed acquisition, and provided commentary on market conditions in North America and China. The company's ability to deliver record earnings and strong free cash flow generation is a testament to its operational efficiency and financial discipline.

1.c. Company Highlights

Last Price	79.08
Change Percentage	0.13%
Open	78.67
Previous Close	78.98
Market Cap ( Millions)	11223
Volume	891573
Year High	79.79
Year Low	58.83
M A 50	69.8
M A 200	69.02

FCF Yield	4.87%
Dividend Yield	1.77%
ROE	29.51%
Debt / Equity	12.34%
Net Debt / EBIDTA	6.90%
Price To Book	5.96
Price Earnings Ratio	20.26
Price To FCF	20.55
Price To sales	2.93
EV / EBITDA	14.24

2. A. O. Smith's 2025 Earnings: Strong Performance and Growth Prospects

A. O. Smith reported a record EPS of $3.85 in 2025, representing a 6% increase from 2024. The company's sales slightly increased, driven by pricing benefits and higher commercial water heater and boiler volumes. The North America segment margin improved 20 basis points, while the rest of the world segment margin expanded 40 basis points. The company's strong free cash flow of $546 million in 2025, a 15% increase from 2024, underscores its financial health.

Publication Date: Feb -04

                                    📋 Highlights
                                    Record 2025 EPS:
                                                Achieved $3.85 per share, a 6% increase from 2024.
Strong Free Cash Flow:
                                                Generated $546 million in 2025, up 15% from 2024.
Margin Expansion:
                                                North America segment margin rose 20 bps, while rest of the world expanded 40 bps.
Leonard Valve Acquisition:
                                                Added $70 million in projected 2026 sales, expanding water management reach.
India Growth Momentum:
                                                Business (including Purit) grew 10% in 2025, with 13% operating margins.

                                

Segment Performance

The North America segment sales increased 2% year-over-year, while segment earnings increased 7% in the fourth quarter. The rest of the world segment sales decreased 4% year-over-year, primarily due to lower sales in China. However, the company's India business, inclusive of Purit, had top-line growth of approximately 10%, complementing the disciplined cost management actions in China.

Growth Prospects and Guidance

For 2026, A. O. Smith expects EPS to be between $3.85 and $4.15 per share, representing 4% growth over 2025 EPS. The company projects top-line growth of 2% to 5% and expects North America segment margin to be between 24% and 24.5%. The rest of the world segment margin is expected to be between 8% and 9%. Analysts estimate next year's revenue growth at 4.0%, aligning with the company's guidance.

Valuation and Metrics

With a P/E Ratio of 19.56 and an EV/EBITDA of 13.7, the company's valuation appears reasonable. The ROE of 28.46% and ROIC of 23.94% indicate strong profitability. The actual EPS of $0.9 relative to estimates at $0.84 suggests a positive surprise. The company's dividend yield of 1.83% and free cash flow yield of 5.04% provide a decent return for investors.

Strategic Priorities

Stephen Shafer discussed the company's strategic priorities, including portfolio management, innovation, and operational excellence. The company is actively working to transform its portfolio to better position it for long-term profitable growth. The acquisition of Leonard Valve is expected to contribute approximately $70 million in sales in 2026, further strengthening A. O. Smith's portfolio.

Outlook and Challenges

A. O. Smith faces challenges, including a decline in China sales due to the discontinuation of government subsidies and increased competitive intensity in the wholesale channel. However, the company is well-positioned to navigate these dynamics, with a strong presence in both retail and wholesale, and a focus on serving the market better and innovating to create better solutions for customers.

3. NewsRoom

Best Dividend Aristocrats For February 2026

Jan -31

Source: seekingalpha.com

A. O. Smith Q4 Earnings Call Highlights

Jan -31

Source: defenseworld.net

A.O. Smith Corp (AOS) Q4 2025 Earnings Call Highlights: Record EPS and Strategic Acquisitions Amid Global Challenges

Jan -29

Source: gurufocus.com

A. O. Smith Corporation (AOS) Q4 2025 Earnings Call Transcript

Jan -29

Source: seekingalpha.com

A. O. Smith Earnings Surpass Estimates in Q4, Sales Miss

Jan -29

Source: zacks.com

Compared to Estimates, A.O. Smith (AOS) Q4 Earnings: A Look at Key Metrics

Jan -29

Source: zacks.com

A.O. Smith (AOS) Q4 Earnings Beat Estimates

Jan -29

Source: zacks.com

A. O. Smith Reports Record 2025 Diluted Earnings Per Share (EPS) of $3.85 and Introduces 2026 Guidance

Jan -29

Source: prnewswire.com

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

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

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Watts Water Technologies

A-Score: 6.0/10

Value: 2.7

Growth: 6.9

Quality: 8.0

Yield: 1.0

Momentum: 8.5

Volatility: 8.7

1-Year Total Return ->

A O Smith

A-Score: 5.8/10

Value: 4.0

Growth: 5.7

Quality: 7.8

Yield: 4.0

Momentum: 4.5

Volatility: 9.0

1-Year Total Return ->

Donaldson

A-Score: 5.6/10

Value: 2.7

Growth: 5.8

Quality: 6.8

Yield: 2.0

Momentum: 7.0

Volatility: 9.3

1-Year Total Return ->

ITT

A-Score: 5.6/10

Value: 2.7

Growth: 6.7

Quality: 6.7

Yield: 2.0

Momentum: 8.0

Volatility: 7.3

1-Year Total Return ->

Nordson

A-Score: 5.1/10

Value: 2.5

Growth: 5.8

Quality: 7.1

Yield: 2.0

Momentum: 4.0

Volatility: 9.0

1-Year Total Return ->

CSW Industrials

A-Score: 4.1/10

Value: 1.7

Growth: 8.1

Quality: 7.7

Yield: 0.0

Momentum: 2.0

Volatility: 5.3

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

9.10%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

10.24%

A. O. Smith Corporation - US8318652091

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on AOS

1.c. Company Highlights

Better Quality

Less Volatile

Expensive

Earnings Beats

Revenues Miss

Revenues Beats

Fairly Valued

Earnings Miss

Stable Momentum

Weak Momentum

Average Yield

2. A. O. Smith's 2025 Earnings: Strong Performance and Growth Prospects

Segment Performance

Growth Prospects and Guidance

Valuation and Metrics

Strategic Priorities

Outlook and Challenges

3. NewsRoom

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%

Water Heater and Water Treatment Products

Expected Growth: 5.8%

Boilers and Related Parts

Expected Growth: 5.2%

Water Treatment Products

Expected Growth: 5.6%

Inter-segment Sales

Expected Growth: 4.8%

7. Detailed Products

Residential Water Heaters

Commercial Water Heaters

Boilers

Water Treatment Solutions

Tankless Water Heaters

Heat Pump Water Heaters

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

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

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

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

79.08$

Current Price

79.08$

Potential

-0.00%

12.e Scoring ^Insights

12.f DCF ^BETA