NEW YORK, Oct. 18 /PRNewswire/ -- A.O. Smith Corp. (AOS: $58) has been picked by Standard & Poor's Equity Research as its Focus Stock of the Week. AOS carries S&P's highest investment recommendation of 5-STARS, or Strong Buy.
"The company is a leading manufacturer of water heating equipment and electrical motors used in the residential, commercial, and industrial markets," said Kevin Kirkeby, Equity Analyst at Standard & Poor's Equity Research. "It has developed what we consider a strong brand identity, evidenced by a 45% domestic market share in residential water heaters and a 50% share of the commercial water heater market. AOS is also among the four largest manufacturers of electric motors in the United States."
Kirkeby notes that although the current economic climate remains uncertain, residential construction appears to have bottomed and non-residential construction, which traditionally lags by several quarters, is forecast by S&P Economics to reach a trough in 2011. He expects increased new home starts and commercial building activity to support unit sales for several years.
"A significant proportion of the company's revenues come from the sale of replacement units, providing relatively consistent sales from year to year, irrespective of economic cycles," said Mr. Kirkeby. "We calculate that 85% of sales in 2009 were of replacement units. This provides greater stability to operating cash flows, and allows AOS increased flexibility in funding growth initiatives, including expanding its portfolio of products and increasing its geographic footprint."
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S&P Global STARS Distribution
In North America
As of September 30, 2010, research analysts at Standard & Poor's Equity Research Services North America recommended 39.2% of issuers with buy recommendations, 52.5% with hold recommendations and 8.3% with sell recommendations.
As of September 30, 2010, research analysts at Standard & Poor's Equity Research Services Europe recommended 36.6% of issuers with buy recommendations, 43.2% with hold recommendations and 20.2% with sell recommendations.
As of September 30, 2010 research analysts at Standard & Poor's Equity Research Services Asia recommended 46.8% of issuers with buy recommendations, 44.4% with hold recommendations and 8.8% with sell recommendations.
As of September 30, 2010, research analysts at Standard & Poor's Equity Research Services globally recommended 39.5% of issuers with buy recommendations, 50.2% with hold recommendations and 10.3% with sell recommendations.
5-STARS (Strong Buy): Total return is expected to outperform the total return of a relevant benchmark, by a wide margin over the coming 12 months, with shares rising in price on an absolute basis.
4-STARS (Buy): Total return is expected to outperform the total return of a relevant benchmark over the coming 12 months, with shares rising in price on an absolute basis.
3-STARS (Hold): Total return is expected to closely approximate the total return of a relevant benchmark over the coming 12 months, with shares generally rising in price on an absolute basis.
2-STARS (Sell): Total return is expected to underperform the total return of a relevant benchmark over the coming 12 months, and the share price is not anticipated to show a gain.
1-STARS (Strong Sell): Total return is expected to underperform the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares falling in price on an absolute basis.
Relevant benchmarks: In North America, the relevant benchmark is the S&P 500 Index, in Europe and in Asia, the relevant benchmarks are generally the S&P Europe 350 Index and the S&P Asia 50 Index.
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