Opinions
Brett Girard, CPA, CA, CFA
A.O. Smith
AOS-N
BUY
Nov 21, 2022
Stock price when the opinion was issued
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A. O. Smith Corporation, with headquarters in Milwaukee, Wis., is a global leader applying innovative technology and energy-efficient solutions to products manufactured and marketed worldwide. The Company is one of the world's leading manufacturers of residential and commercial water heating equipment and boilers, as well as a manufacturer of water treatment and air purification products. Social media mentions are up 500% in the past 24h.
Compound annual returns have been 14% over 10 years, 17% over 20. He's owned this for a long time and sees no reason to sell it. Yes, a slowdown in US construction effects part of their business, but there will be long-term growth in China. Growth rates will endure. Water remains a major issue in the world.
Water filtration and boilers. Big trend around the world with population growth. Stumbled on sales in China, whose economy is struggling. Moving into India, where it's been a great success. Future is bright. Add to your position if you're not already overweight.
Dividends grew 13% last year, 11% per year over 5 years, 35% per year over 10 years. Getting paid to wait. Sometimes the market just doesn't recognize the value of a company, and then some catalyst (impossible to know what or when) comes along to unlock value.
Water filtration, boilers, water technology. About 75% of sales are domestic US, so tariffs are not much of an issue. Things like devastation from California wildfires will push demand. Missteps in China and India. Dividends continue to grow ~12% a year. High quality name, relatively cheap compared to historical levels. Yield is 1.9%.
(Analysts’ price target is $82.83)