A. O. Smith (AOS): Assessing Valuation After Dividend Boost and Updated 2023 Outlook

A. O. Smith (AOS) reported a 4% increase in third-quarter sales, with earnings per share rising 15% compared to last year. The company also increased its dividend for the thirty-second consecutive year.

See our latest analysis for A. O. Smith.

Despite resilient quarterly results and an impressive streak of 32 consecutive years of dividend increases, A. O. Smith's share price has struggled, down 10.03% over the past month and 1.99% year-to-date. While the company continues to return value to shareholders and pursue strategic acquisitions, the total shareholder return over the past year has slipped to -10.37%, reflecting recent pressure amid lowered earnings guidance. That said, longer-term investors have still enjoyed a 22.47% total shareholder return over three years and nearly 36% over five, showing the stock’s enduring wealth-building track record even as near-term momentum is lagging.

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Given this mix of strong fundamentals and cautious guidance, investors are left to wonder whether A. O. Smith’s recent share price softness is an opportunity to buy quality at a discount, or if the market already anticipates modest future growth.

Most Popular Narrative: 15.6% Undervalued

With the narrative placing fair value for A. O. Smith at $78.18, well above the most recent closing price of $65.99, the stage is set for a deeper look into what might drive this valuation premium over the current market level.

Heightened investment and commitment to digital transformation and innovation, including the onboarding of a new CTO, a new R&D center, and increased focus on connected appliances, poise A. O. Smith to capture premium pricing and recurring revenue streams, materially supporting net margin expansion as smart home penetration grows.

Read the complete narrative.

Wondering what ambitious financial assumptions could justify such a bullish view? The narrative hints at stronger margins, evolving product mixes, and a multi-year push into tech-driven sales. Discover the bold forecasts and pivotal numbers that support this elevated valuation. Click through and see what the market could be missing.

Result: Fair Value of $78.18 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent weakness in China and heavy reliance on mature North American markets remain significant risks. These factors could challenge A. O. Smith’s growth outlook.

Find out about the key risks to this A. O. Smith narrative.

Build Your Own A. O. Smith Narrative

If you see things differently or want to follow your own line of research, you can build your own story in just a few minutes, right here: Do it your way

A great starting point for your A. O. Smith research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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