Oppenheimer upgrades A.O. Smith to Outperform on compelling risk/reward

As previously reported, Oppenheimer analyst Bryan Blair upgraded A.O. Smith (AOS) to Outperform from Perform with an $88 price target given the firm’s stance that A.O. Smith’s through-the-cycle earnings resilience/power are underappreciated, stock sentiment lingers near trough levels, and valuation now discounts North American franchise strength and ascribes minimal, realistically negative value to Rest of World assets. Oppenheimer acknowledges near-term earnings visibility is somewhat limited but considers downside mitigated by replacement-weighted NA demand. Combined with discounted valuation and significant dry powder, the firm believes NA anchors margin of safety and solidly levers medium-term EPS upside. In turn, ROW affords optionality on China recovery and AOS-India prospects, it adds.