- Price
- $59.34
- Fair value
- $72.00
- Discount
- 17.6%
- Uncertainty
- Medium
- LSEG rating
- 2.57
- Moat
- Wide
- Next earnings
- 2026-10-29
- Next earnings is estimate
- No
- Company name
- A. O. Smith
- Sector
- Water heaters & boilers
- About
- A. O. Smith makes water heaters, boilers and water treatment products for homes and commercial buildings. North America is its largest segment, with $820.5 million of the $1,004.3 million of sales in Q2 2026. In North America, most sales are replacements of old water heaters, which home owners need when a unit fails, so demand is more stable than new construction. It sells through wholesale distributors and large retailers such as Lowe's. The Rest of World segment is mostly China, where it sells water heaters and water purifiers to consumers, and India. Sales in 2025 were $3.83 billion. In January 2026, A. O. Smith bought Leonard Valve, a maker of water temperature control valves, for about $470 million in cash. It makes money from the margin between its prices and the cost of steel, parts and labor, and it raises prices when steel costs rise.
- Thesis
- A. O. Smith trades at a discount because both of its markets are weak at the same time. In North America, residential water heater demand is weak, and the company expects industry residential water heater volumes to fall by a low single-digit percentage in 2026. In China, sales fell 28% in local currency in Q2 2026 on weak consumer demand, and the company has assessed options for this business since the third quarter of 2025 with no decision yet. Costs rise too: steel cost about 20% more in Q2 2026 than a year earlier, and tariffs add cost. Management lowered the top of its 2026 adjusted EPS guidance to $3.85 from $4.00 and said that Q3 2026 EPS will be lower than in Q2 and Q4, because customers bought early before price increases. For the gap to close, the 4% to 7% North America water heater price increase must hold, residential volumes must stop falling, and A. O. Smith must reach adjusted EPS of $3.70 to $3.85 for 2026. It must also make a decision on China, such as a partnership or a sale, that stops the fall in Rest of World earnings. The first test is the Q3 2026 report on October 29, 2026. The second test is the full-year 2026 report and the 2027 guidance, expected in late January 2027. If prices hold and China stops falling, the gap can close over the next two to four quarters. The main risk is a longer fall in US housing activity and in Chinese consumer demand.
- Risks
- Residential water heater demand in North America is weak. The company expects industry volumes to fall by a low single-digit percentage in 2026. If home owners delay replacements or buy cheaper units, volumes and margins fall.
China sales fell 28% in local currency in Q2 2026, and the Rest of World segment margin fell to 5.2% from 10.5%. The assessment of the China business started in the third quarter of 2025 and has no result yet. A sale or restructuring can bring charges.
Steel cost about 20% more in Q2 2026 than a year earlier, and tariffs add cost. A. O. Smith plans 4% to 7% price increases on North America water heaters. If competitors such as Rheem and Bradford White do not follow, A. O. Smith can lose share or margin.
Q2 2026 sales included early purchases before price increases and boiler early-buy programs. These pulled demand from Q3 2026, so management expects Q3 EPS to be lower than in Q2 and Q4.
- Balance sheet
- Cash: $181M
Debt: $638M
Net debt: $457M
Interest cover: 22×
Debt due within 12 months: $40M
At June 30, 2026, A. O. Smith had $181.3 million of cash and no marketable securities, down from $18.7 million of marketable securities at December 31, 2025. Debt was $637.5 million, of which $39.5 million was due within one year. Most of the debt came from a new term loan that paid for Leonard Valve in January 2026. Debt was 25.7% of total capital. Interest cover is earnings before interest and taxes of $327.9 million divided by interest expense of $15.2 million in the first half of 2026. Free cash flow was $233.3 million in the first half of 2026, up 67%. In the first half, A. O. Smith bought back 2.6 million shares for $162.4 million, and it raised its 2026 buyback target to $300 million. The quarterly dividend was $0.36 per share, and the Board raised it to $0.38 on October 12, 2026.
As of 2026-06-30.
- Checkpoints
- Oct 29, 2026: Q3 2026 results: water heater prices and China. Pending. Watch: North America price increases that hold, unchanged 2026 adjusted EPS guidance of $3.70 to $3.85, and a decision on China pass; a cut to the guidance or a further large fall in China sales fails.
Jan 2027 (estimate): Full-year 2026 results and 2027 guidance. Pending. Watch: 2027 guidance with stable residential water heater volumes and higher North America margins passes; guidance for another year of lower volumes fails.
- Recent events
- 2026-10-12: The Board raised the quarterly dividend by about 6% to $0.38 per share, from $0.36.
2026-10-02: A. O. Smith said that it will report Q3 2026 results on October 29, 2026, before the market opens, with a call at 10:00 a.m. Eastern time.
2026-07-30: A. O. Smith reported Q2 2026 results. Sales were $1,004.3 million, down 1%. Adjusted EPS was $1.03, down 4%, and diluted EPS was $0.91, down 15%, after $22.6 million of restructuring and impairment charges in North America water treatment. North America sales grew 5% to $820.5 million, with $16 million from Leonard Valve. Rest of World sales fell 19%, and China sales fell 28% in local currency. The company narrowed its 2026 adjusted EPS guidance to $3.70 to $3.85, from $3.70 to $4.00, and raised its 2026 share buyback target to $300 million from $200 million.
2026-06-22: A. O. Smith said that Executive Chairman Kevin Wheeler retires on July 1, 2026. The Board elected CEO Stephen Shafer as chairman.
2026-04-30: A. O. Smith reported Q1 2026 results. Sales were $945.6 million, down 2%, and diluted EPS was $0.85, down 11%. China sales fell 17% in local currency. The company lowered the top of its 2026 sales growth guidance to 4% from 5%. The CEO said that actions in China wait for the end of the assessment of the business.