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Milwaukee, Wisconsin-based A. O. Smith Corporation (AOS) manufactures and markets residential and commercial gas and electric water heaters, boilers, heat pumps, tanks, and water treatment products. Valued at a market cap of almost $10 billion, the company specializes in offering innovative and energy-efficient solutions and products.
Companies valued at less than $10 billion are typically classified as “mid-cap stocks,” and AOS fits the label perfectly. The water treatment solutions provider has sales and distribution in more than 80 countries around the world and aims to become a leading global water technology company through new product development, global expansion, strategic acquisitions, and partnerships.
Despite its strengths, the company has dropped 25.5% from its 52-week high of $92.44, achieved on Jul. 18. Moreover, it has declined 22.9% over the past three months, significantly falling behind the broader Industrial Select Sector SPDR Fund’s (XLI) marginal decrease over the same time frame.
Moreover, in the longer term, AOS has fallen 15.8% over the past 52 weeks, massively underperforming XLI’s 17.8% returns. Over the past six months, shares of AOS are down 16.4%, lagging behind XLI’s 10.3% gains over the same time frame.
To confirm its bearish trend, AOS has been trading below its 200-day and 50-day moving average since mid-October.
On Oct. 22, AOS’s shares marginally declined after its Q3 earnings release as its adjusted EPS decreased 8.9% year over year to $0.82 per share, and its revenue fell 4% annually to $902.6 million. The decline in top and bottom-line figures can be primarily attributed to lower sales in China and decreased volumes of water heaters in North America. Nonetheless, its revenues surpassed the Wall Street estimates, while its adjusted earnings met the forecasted figure.
Noting its performance, the company lowered its full-year 2024 sales outlook to $3.8-$3.9 billion and also trimmed its adjusted EPS forecast in the range of $3.70-$3.85. This might have further triggered investor sentiments.
AOS’ underperformance looks even more pronounced when compared to its rival, Lennox International Inc. (LII), which gained 41.1% over the past 52 weeks and nearly 17.9% over the past six months.
Looking at A. O. Smith’s recent underperformance, analysts remain cautious about its prospects. The stock has a consensus rating of “Hold” from the 11 analysts covering it, and the mean price target of $81.88 suggests an 18.9% premium to its current levels.
