SMITH A O CORP (AOS)

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AI: Fair-priced

Price checkAt $59.38, the shares look fairly priced despite strong cash generation.

At $59.38, A. O. Smith trades at about 15.7 times the midpoint of management’s 2026 adjusted earnings outlook of $3.70–$3.85 a share. Adjusted earnings remove the North America water-treatment restructuring charge. The 2025 free cash flow—cash left after operations and capital spending—was $546 million, implying roughly a 6.7% cash yield on an approximately $8.2 billion equity value. That is reasonable, not obviously cheap, because 2026 adjusted earnings are guided roughly flat versus 2025 and China remains weak.

Big pictureCash generation has held up, but growth remains uneven and tied to housing cycles.

Revenue rose from $2.99 billion in 2019 to $3.83 billion in 2025, while net income increased from $370 million to $546 million. Free cash flow was positive in every supplied year and equaled $546 million in 2025, but dropped to $321 million in 2022, showing cyclicality. In the first half of 2026, sales fell 1% and net income fell 15%, yet free cash flow rose 67% to $233 million because working capital improved. That mix suggests durable cash production but limited near-term growth.

Business strengthA sturdy balance sheet and replacement demand support resilience, despite higher acquisition debt.

At June 2026, cash was $181.3 million and debt was $637.5 million, leaving $456.2 million of net debt after the Leonard Valve purchase. Debt was only 25.7% of total capital, and current assets covered current liabilities 1.59 times, so refinancing pressure appears manageable. A. O. Smith spent $400.8 million on buybacks and $195.7 million on dividends in 2025; 2026 buybacks target $300 million. The estimated diluted share base fell about 3% year over year, while stock compensation stayed small, indicating limited dilution.

What could change the storyChina stabilization and acquisition gains could unlock upside, while weaker home demand threatens estimates.

Bull case: Leonard Valve adds commercial water-control products, boiler sales grew 21% in the second quarter, and a China recovery would lift sales and margins. Bear case: China sales fell 28% in local currency, North American residential water-heater volumes remained soft, and steel costs pressured margins. At roughly 16 times expected earnings—the price divided by annual profit per share—the valuation assumes profits stabilize and then grow modestly. Continued China declines or acquisition underperformance would make it rich; restored China growth and debt reduction could make it attractive.

$59.38 price considered

AI: News

Outlook Narrows AgainSecond-quarter results beat forecasts, but weaker China and residential demand forced another outlook reduction.

On July 30, 2026, A. O. Smith reported $1.00 billion of sales, $125 million of net income and $0.91 of earnings per share. Adjusted earnings per share, which excludes restructuring costs, was $1.03. Management narrowed 2026 adjusted earnings guidance to $3.70–$3.85 from $3.70–$4.00. China sales fell 28% in local currency. Investing.com reported shares down 3.39% as investors weighed the outlook, although that timing alone cannot establish the forecast change as the sole cause.

First Outlook CutWeak China demand and softer water-heater sales prompted April’s larger earnings forecast reduction.

On April 30, 2026, first-quarter sales fell 2% to $945.6 million, while earnings per share declined 11% to $0.85. Management reduced adjusted 2026 earnings guidance to $3.70–$4.00 from $3.85–$4.15, citing China weakness, softer North American demand and storm-related disruption at its Tennessee plant. The shares closed 2.9% lower that day. The timing is consistent with a negative response, but broader trading may also have contributed.

Leonard Valve AcquisitionThe debt-funded purchase expands commercial water controls but raises the burden on future cash generation.

A. O. Smith completed the Leonard Valve acquisition on January 6, 2026, paying $470 million in cash, or about $412 million after estimated tax benefits. Borrowing funded the deal, helping move the company from $19.5 million of net cash at year-end 2025 to $456.2 million of net debt by June. Leonard contributed $16 million of second-quarter sales. Its commercial replacement exposure offers diversification, but the purchase must deliver profitable growth and cash for the added debt to create value.

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Financial statements

	2025	2023	2022	2021	2020	2019	2018	2017	2016	2015	2014	2013	2012	2011	2010	2009	2008
Revenue	$3.83B	$3.85B	$3.75B	$3.54B	$2.90B	$2.99B	$3.19B	$3.00B	$2.69B	—	—	—	—	—	—	—	—
Gross profit	$1.49B	$1.48B	$1.33B	$1.31B	$1.11B	$1.18B	$1.31B	$1.23B	$1.11B	$1.01B	$859.3M	$773.8M	$652.0M	$512.6M	$446.0M	$394.9M	$374.1M
Research & development	$95.0M	$97.5M	$89.0M	$94.2M	$80.7M	$87.9M	$94.0M	$86.4M	$80.1M	$73.7M	$67.9M	$57.8M	$51.7M	$42.7M	$37.1M	$31.0M	—
Operating income	$728.6M	$745.5M	$362.0M	$682.0M	$503.2M	$529.1M	$613.4M	$577.9M	$515.0M	$452.9M	$345.3M	$299.9M	$259.4M	$196.5M	$132.9M	—	—
EBITDAderived	$813.7M	$823.8M	$438.9M	$759.9M	$583.2M	$607.4M	$685.3M	$648.0M	$580.1M	$515.9M	$405.1M	$359.6M	$314.0M	$243.5M	$173.7M	—	—
Net income	$546.2M	$556.6M	$235.7M	$487.1M	$344.9M	$370.0M	$444.2M	$296.5M	$326.5M	$282.9M	$207.8M	$169.7M	$158.7M	$305.7M	$111.7M	$81.3M	$21.7M
Basic EPSper diluted share	$3.87	$3.71	$1.52	$3.05	$2.13	$2.24	$2.60	$1.72	$1.87	$1.59	$1.15	$1.84	$1.72	$3.31	$2.44	$2.37	$1.53
Diluted EPSper diluted share	$3.85	$3.69	$1.51	$3.02	$2.12	$2.22	$2.58	$1.70	$1.85	$1.58	$1.14	$1.83	$1.71	$3.28	$2.42	$2.36	$1.53

Review source filings at SEC.gov ↗

Insider buys & sells

Jul 1, 2024–Jun 30, 2026

Buys0$0.00 disclosed value

Sells (SEC code S)10$4.93M disclosed value

Transaction	Insider	Type	Shares	Price	Value	Owned after
Mar 4, 2026Form 4	Schuh Darrell W.SVP; President & GM Lochinvar	SellCommon Stock	1.1K	$74.39	$82.1K	2.2K
Feb 13, 2026Form 4	Schuh Darrell W.SVP; President & GM Lochinvar	SellCommon Stock	356	$79.89	$28.4K	3.3K
Aug 7, 2025Form 4	STERN JAMES FExec VP, General Counsel & Sec	SellCommon Stock	17.4K	$71.24	$1.24M	98.8K
Jul 30, 2025Form 4	Wheeler Kevin J.Executive Chairman	SellCommon Stock	22.2K	$71.26	$1.58M	100.6K
Jul 29, 2025Form 4	SMITH MARK DDirector	SellCommon Stock	2.4K	$71.36	$171.3K	116.2K

Review ownership filings at SEC.gov ↗

SMITH A O CORP (AOS)

Financial charts

Financial statements

Insider buys & sells