Asia FX muted, dollar weakens slightly ahead of Fed rate decision
Investing.com - UBS raised its price target on AO Smith (NYSE:AOS) to $76.00 from $74.00 on Tuesday, while maintaining a Neutral rating on the water heater manufacturer’s stock. According to InvestingPro data, AO Smith maintains strong financial health with a GOOD overall rating, supported by its consistent dividend payments for 17 consecutive years and robust cash flows.
The firm cited conservative guidance from AO Smith, particularly regarding North American margins. UBS noted that while the second half of 2024 will face incremental costs from steel and tariffs leading to sequential margin pressure, pricing and higher volumes should still support year-over-year margin expansion. The company currently maintains a healthy gross profit margin of 38.2% and generates strong returns with a 28% return on equity.
UBS expressed surprise at the magnitude of weakness in China, where AO Smith sales declined 11% year-over-year despite a positive 2% comparison from 2024. The firm believes AO Smith is losing market share in China, with new product and branding initiatives failing to compensate for the decline.
The company has announced a strategic review of its China business, which UBS considers appropriate given the performance issues. The firm’s analysis suggests potential value could be unlocked through divesting the China operations, though tax hurdles may exist since approximately two-thirds of AO Smith’s cash is located overseas.
UBS indicated investors will likely focus on how to value the business excluding China, particularly as North American competition could intensify when the Lennox International/Ariston partnership enters the market in 2026. InvestingPro analysis suggests AO Smith is currently undervalued, with additional ProTips and detailed valuation metrics available to subscribers. For comprehensive insights into AO Smith and 1,400+ other US stocks, access the full Pro Research Report on the InvestingPro platform.
In other recent news, A.O. Smith Corporation reported strong second-quarter 2025 financial results, surpassing Wall Street expectations. The company achieved an earnings per share (EPS) of $1.07, exceeding the forecasted $0.98. Additionally, A.O. Smith reported revenue of $1 billion, slightly above the anticipated $994.93 million. DA Davidson has maintained its Neutral rating and $75.00 price target on A.O. Smith, following the company’s earnings release. The firm highlighted that the North American segment showed robust performance, particularly due to healthy boiler demand. A.O. Smith’s revenue exceeded DA Davidson’s expectations by $20 million, and its operating profit was $13 million stronger than anticipated. The company’s outlook remains stable, with recent price increases in North America. DA Davidson’s analysis also noted stable demand across both North American and international segments.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.