Is A. O. Smith Corporation (AOS) overvalued or undervalued?
Updated Nov 10, 2026 · hand-researched model · educational, not advice
At a recent price of $65.20, A. O. Smith Corporation (AOS) sits inside a range too wide to call either way: our valuation lenses put the business somewhere between $19.91 and $99.76 per share. They disagree too widely for us to state a single fair value. We publish the range rather than a midpoint because a number that precise would claim more than the methods can support. This is an educational model, not a price target or a recommendation.
The valuation discounts A. O. Smith Corporation's projected free cash flows at a weighted-average cost of capital (WACC) of 10.3%, with a long-run terminal growth rate of 2.5%. About 70% of the enterprise value comes from the terminal value — the portion beyond the explicit forecast window — which is typical for a stable, cash-generative business and a reminder that small changes in the discount rate or terminal growth assumption swing the intrinsic value meaningfully.
Running the DCF in reverse — solving for the growth the current price already assumes — the market is implying roughly 6.7% annual revenue growth for AOS. Our base case instead compounds to about 3.1% a year over the same forecast, so the market is pricing in materially faster growth than our base case. The reverse-DCF is a quick sanity check: it reframes 'is this stock cheap?' as 'do I believe the growth the price requires?' rather than arguing over a single point estimate of fair value.
Sensitivity matters more than any single number. Across a reasonable band of discount-rate assumptions, AOS's modeled DCF value ranges from about $37.47 to $71.28 per share. If that range still sits below today's price, the market is optimistic relative to the model across the whole band; if it brackets the price, the stock is roughly fairly valued on our assumptions. Use the interactive slider to see exactly where your own cost-of-capital view lands.
How to read this page: the DCF fair value is what A. O. Smith Corporation would be worth if its cash flows grow as modeled and are discounted at the stated WACC. The assumptions table shows every input and its source; the reverse-DCF shows what the market believes; the sensitivity band shows how fragile the answer is. None of this is investment advice — it is a transparent, auditable framework for forming your own view of AOS's intrinsic value. Figures update as new filings and prices come in.
The assumptions behind AOS's DCF
| Input | Value | Source |
|---|---|---|
| Base-year revenue | $3,830,200,000 | A. O. Smith FY2025 10-K (accession 0000091142-26-000008, filed 2026-02-10), calendar year ended 2025-12-31; Q4/FY2025 results 8-K Ex-99.1 (accession 0000091142-26-000005, 2026-01-29): Net sales $3,830.2M (us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax), +0.3% on FY2024's $3,818.1M. FLAT FOR THREE YEARS: FY2023 $3,852.8M, FY2024 $3,818.1M, FY2025 $3,830.2M, after the 2021-22 price-led jump from $2,895M (FY2020). Segment split: North America $2,984.2M (78%; water heaters, boilers, water treatment) and Rest of World $880.4M (22%, majority China; China was ~18% of total sales), less $34.4M inter-segment. FY2025 included $54M from Pureit (India, acquired late 2024); China third-party sales fell 12%. Two customers took 16% and 12% of sales; the top five ~41% (10-K). UNCHANGED as the base - the DCF grows it by forecast.revenue_growth. CROSS-CHECK on the latest quarter (8-K Ex-99.1, 2026-07-30, accession 0000091142-26-000096): H1 2026 net sales $1,949.9M, -1.3% on H1 2025's $1,975.2M, including ~$32M from Leonard Valve (acquired 2026-01-06); organic -4%. North America +3% (organic +1%); Rest of World -15% with China -28% in local currency in Q2. Trailing twelve months to 2026-06-30: $3,804.9M. |
| Base EBIT margin | 19.0% | A. O. Smith Q4/FY2025 earnings release, 8-K Ex-99.1 (accession 0000091142-26-000005, filed 2026-01-29) + FY2025 10-K XBRL (us-gaap:OperatingIncomeLoss): Operating income $728.6M (tagged us-gaap:OperatingIncomeLoss in the 10-K) / $3,830.2M = 19.02%. A. O. Smith prints no operating-income line on the face of the statement; the build is gross profit $1,487.4M - SG&A $759.4M = $728.0M (19.01%), and the tagged figure is the same thing plus $0.6M of other income. Equivalently, segment earnings $804.1M less corporate expense ~$75.5M. No restructuring in FY2025 (FY2024 carried $17.6M). It is a CLEAN, MID-CYCLE base, not a peak: on the same tag the margin was 19.2% (FY2016), 19.3% (2017), 19.2% (2018), 17.7% (2019), 17.4% (2020), 19.3% (2021), 19.3% (2023), 18.5% (2024) - FY2022's 9.6% is a one-off non-cash pension-settlement charge. FY2025 sits on the 10-year average of ~19%. CROSS-CHECK, H1 2026 (8-K Ex-99.1, 2026-07-30): gross profit $753.5M - SG&A $401.6M - restructuring $22.6M = $329.3M, a 16.9% GAAP margin; 18.05% excluding the restructuring, against 19.67% in H1 2025. The ~160bp of underlying slippage is China deleverage (Rest of World segment margin 5.7% vs 9.6%), steel up ~20% YoY in Q2 ahead of price increases that only start landing mid-Q3, ~$6.8M of Leonard Valve deal costs and new acquired-intangible amortization. |
| Forecast revenue growth | 2% → 3% → 4% → 4% → 3% | Assumption — TickerWorth's 5-year explicit forecast |
| Risk-free rate | 5.2% | US 10Y Treasury constant maturity (FRED DGS10): 5.24% on 2026-10-01, the latest published observation; the program-wide rate shared by every researched model in this run. |
| Beta | 1.11 | Yahoo Finance 5Y-monthly beta via yfinance, read 2026-10-05: Published 5Y-monthly beta 1.11, used AS IS - no normalization, the same policy as Masco (1.294) and Home Depot (0.955) in this tracker. Plausible for a building-products manufacturer with steel-input exposure, ~22% of sales in a shrinking China consumer market and a share price that has fallen from the low $80s to the mid-$50s over the last year. It is the biggest lever after margins: each 0.1 of beta is worth ~$3.15/share (1.01 gives ~$52.35; 1.21 ~$46.10), and a beta of ~0.89 (WACC ~9.3%) is what today's price needs. A 'defensive replacement business' argument would push it lower; the China drawdown argues against. |
| Terminal growth | 2.5% | Assumption — house default: House default 2.5% (roughly long-run nominal GDP), kept for comparability. Neither generous nor stingy for A. O. Smith: sales compounded ~4.1% a year FY2016-25 including the 2021-22 pricing surge and a buy-and-build strategy, but have been flat for three years. 3.0% adds ~$2.70/share; 2.0% takes ~$2.35 off. Must remain < WACC of 10.33%. |
| Diluted shares | 138M | A. O. Smith Q2 2026 10-Q (accession 0000091142-26-000098) Note 8, Earnings per Share: Q2 2026 denominator for diluted EPS 137,862,584 (H1 138,511,483; FY2025 141.9M). Covers BOTH share classes. NOTE THE TRAP: yfinance's sharesOutstanding (110.0M) is Common Stock only and omits the 25.9M Class A shares held largely by the Smith family voting trust - per-share math on 110M would overstate value by ~25%. The count is falling ~3% a year (176.8M in FY2016); 135.9M were outstanding at 2026-07-28 and management targets $300M of 2026 buybacks ($162.4M done in H1). Using the weighted Q2 count is the house rule and mildly conservative: 135.9M would add ~$0.72/share. |
| Market price | $65.20 | Delayed quote · as of 2026-11-10 04:59 UTC |
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