Aos Stock Exhibits Strong Prospects Despite Persisting Headwinds

A. O. Smith Corporation AOS has solidified its product portfolio and leveraged business opportunities through asset additions. The company acquired the Pureit business from Unilever in November 2024. The inclusion of Pureit’s expertise in water treatment solutions, coupled with its strong brand recognition, expanded A. O. Smith’s customer offerings and boosted its position in the water treatment industry in India. In March 2024, the company acquired privately held water treatment company Impact Water Products, which boosted its water treatment footprint in North America. The acquired company is included in the North America segment. 

The June 2022 acquisition of Atlantic Filter boosted the company’s position in the water treatment industry and strengthened its customer base in Florida and the adjacent regions. The company spent $145.9 million on acquisitions in 2024. Also, improving supply chains are driving shipments at its facilities.

The company’s shareholder-friendly policies are encouraging. In 2024, AOS paid dividends worth $190.4 million, up 3.8% year over year. In October 2024, the company increased the dividend by 6% to 34 cents per share (annually: $1.36). It has increased dividends consecutively for more than 30 years. In 2024, AOS also repurchased 3.8 million shares for $305.8 million. While exiting the fourth quarter, 1.7 million shares were left to be repurchased under the existing authorization. The company expects to repurchase shares worth approximately $400 million in 2025. A. O. Smith has a sound liquidity position. At the end of the fourth quarter, it had cash and cash equivalents of $239.6 million, much higher than the current debt of $10 million. Exiting the quarter, the company had a long-term debt of $183.2 million. This implies that it has sufficient cash to meet its debt obligations.

Downsides of AOS

The ongoing challenges in the Chinese real estate market are concerning for A. O. Smith. Lower volumes of water heaters and water treatment products in the region are affecting the Rest of World segment’s performance. Also, a decline in orders for residential and commercial water heater products in the North America segment is worrisome. Also, lower volumes of residential and commercial water heaters are affecting the segment’s performance.

A. O. Smith has a significant presence in Asian countries like China and India. Since its products are priced in the local currencies of these countries, any increase in the value of the U.S. dollar relative to the local currencies would impact its revenues and profitability. For example, adverse foreign currency movements lowered the Rest of the World segment’s revenues by $13 million in 2024.

In the year-to-date period, this Zacks Rank #3 (Hold) company’s shares have lost 0.7% compared with the industry’s 3.1% decline.

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