Have you been paying attention to shares of A.O. Smith (AOS)? Shares have been on the move with the stock up 8.4% over the past month. The stock hit a new 52-week high of $77.34 in the previous session. A.O. Smith has gained 34.7% since the start of the year compared to the 8.1% move for the Zacks Industrial Products sector and the 17.7% return for the Zacks Manufacturing - Electronics industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 26, 2023, A.O. Smith reported EPS of $0.9 versus consensus estimate of $0.79 while it beat the consensus revenue estimate by 3.38%.
For the current fiscal year, A.O. Smith is expected to post earnings of $3.77 per share on $3.84 billion in revenues. This represents a 20.06% change in EPS on a 2.17% change in revenues. For the next fiscal year, the company is expected to earn $4 per share on $3.96 billion in revenues. This represents a year-over-year change of 6.04% and 3.37%, respectively.
A.O. Smith may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
A.O. Smith has a Value Score of B. The stock's Growth and Momentum Scores are A and F, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 20.4X current fiscal year EPS estimates, which is not in-line with the peer industry average of 22.6X. On a trailing cash flow basis, the stock currently trades at 20.6X versus its peer group's average of 18.6X. Additionally, the stock has a PEG ratio of 2.27. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, A.O. Smith currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if A.O. Smith passes the test. Thus, it seems as though A.O. Smith shares could have a bit more room to run in the near term.
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