Here's Why Investors Should Retain A. O. Smith Stock in Portfolio Now

A. O. Smith Corporation AOS has been benefiting from strong momentum in its boiler business in North America. In the second quarter of 2026, sales from its North America boiler business grew 21% year over year. The company expects sales from the boiler business to grow approximately 6-8% this year, while sales from its North America water treatment business are expected to grow approximately 5-6%. For 2026, A. O. Smith expects total sales to grow at about 2-3% year over year.

A. O. Smith remains focused on acquiring businesses to gain access to new customers, regions and product lines. For instance, in January 2026, AOS acquired LVC Holdco LLC (Leonard Valve) for $470 million. The buyout strengthened its water heating and boiler offerings and boosted its presence in the water management market. It continues to expect the addition of Leonard Valve to contribute approximately $70 million to its sales in 2026. In the first six months of 2026, acquisitions boosted the company’s sales by 2%.

Management is committed to rewarding shareholders through dividend payouts and share repurchases. In the first six months of 2026, it paid dividends worth $99.8 million, up 2.4% year over year and repurchased 2.6 million shares for $162.4 million. Also, in January 2026, the company’s board boosted the buyback program by another 5 million shares. For 2026, it expects to repurchase shares worth approximately $300 million.

AOS Stock’s Price Performance

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In the past three months, the Zacks Rank #3 (Hold) company has gained 6% compared with the industry’s 1.3% growth.

However, lower volumes of residential water treatment and water heater products in China remain challenging for the Rest of the World segment. The segment’s revenues declined 15.3% year over year in the first six months of 2026. Organic sales in China fell 18% in the same period in local currency. AOS issued a lackluster 2026 sales outlook for China. It currently expects the metric to decrease in the low double digits on a year-over-year basis in local currency.

Rising operating expenses also pose a threat to A. O. Smith’s bottom line. In the second quarter, the company’s selling, general & administrative expenses were $197.7 million, up 3.3%. Gross profit decreased 2.3% year over year to $387.8 million. The gross margin was 38.6% compared with 39.3% in the year-ago period.

Key Picks

Some better-ranked stocks from the same space are discussed below.

Emerson Electric Co. EMR carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Emerson’s earnings surpassed the consensus estimate twice and matched it in the other two trailing four quarters. The average earnings surprise was 1.3%.  In the past 60 days, the Zacks Consensus Estimate for Emerson’s fiscal 2026 (ending September 2026) bottom line has inched up 0.5%.

Enersys ENS currently carries a Zacks Rank of 2. Enersys’ earnings topped the consensus estimate in each of the trailing four quarters. The average earnings surprise was 11.5%. In the past 60 days, the Zacks Consensus Estimate for Enersys’ fiscal 2027 (ending March 2027) earnings has increased 10.8%.

Franklin Electric Co. FELE presently carries a Zacks Rank of 2. Franklin Electric’s earnings topped the consensus estimate thrice and missed once in the trailing four quarters. The average earnings surprise was 3.9%. The Zacks Consensus Estimate for Franklin Electric’s 2026 earnings has increased 1.5% over the past 60 days.

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This article originally published on Zacks Investment Research (zacks.com).

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