A. O. Smith

Methodology

A. O. Smith's water heaters and boilers have demand tied to residential construction and replacement cycles, creating moderate cyclicality. The company's mix of new construction and larger replacement market provides some stability compared to pure homebuilding suppliers. This fair value calculation works reasonably for A. O. Smith during normal housing markets, though new construction volatility and commodity cost inflation can significantly impact near-term margins and growth.

Methodology

A. O. Smith's PEG ratio typically ranges from 1.5-2.5, reflecting moderate valuations for a building products company with exposure to both cyclical new construction and steadier replacement demand. The company's market leadership in water heating and expansion into water treatment provide growth drivers beyond housing cycles. Compare to other building products companies to assess whether A. O. Smith's replacement market exposure and China growth justify current multiples.

Methodology

A. O. Smith's dividend yield (around 1.5-2.5%) provides modest total return enhancement alongside cyclical growth from housing and water treatment markets. The company's consistent cash generation through cycles supports steady dividend increases. PEGY better captures the complete investment proposition for A. O. Smith as a quality building products company offering both growth potential and income stability through housing market fluctuations.