A.O. Smith Should Outperform Peers, Goldman Sachs Says In Upgrade

Pricing power, "stable" water heater volumes in the U.S., cash flow generation and growth opportunities in the U.S., China and India make A. O. Smith Corp a defensive stock, Goldman Sachs said in a Wednesday upgrade.

The Analyst

Analyst Samuel Eisner upgraded shares of A.O. Smith from Neutral to Buy and increased the price target from $64 to $73, suggesting 16-percent potential upside.

The Thesis

A.O. Smith's water heater operations alone possesses volume visibility, pricing power and strong balance sheets, which are important criteria for alpha generation in an environment of lumpiness in macro sentiment and margins, Eisner said in a Wednesday note.

Every 1 point of replacement volume will fetch the company 1 cent in earnings per share, the analyst said.

Vsibility on continued double-digit rest-of-the-world growth is high in light of consumer sentiment and low water heater penetration, Eisner said.

Eisner said he expects rest-of-the-world revenues to grow at a CAGR of 17 percent through 2020 alongside improving margins.

A.O. Smith has the strongest balance sheet in Goldman's coverage universe, providing it with capital optionality that could drive upside, the analyst said. Goldman forecast 24-39 percent upside to its 2019 EBITDA estimate from capital deployment alone.

"We see NA water treatment as an attractive area for M&A," Eisner said.

Goldman increased its 2019 earnings per share forecast from $2.90 to $2.96, citing the solid rest-of-the-world growth and increasing margins alongside the buildout of North American water treatment.

The Price Action

A.O. Smith shares are up about 22 percent over the past year.

The stock was up 0.41 percent at the time of publication Wednesday.
Taken from https://www.benzinga.com/analyst-ratings/analyst-color/18/04/11468554/a-o-smith-should-outperform-peers-goldman-sachs-says-in

A.O. Smith Should Outperform Peers, Goldman Sachs Says In Upgrade

Pricing power, "stable" water heater volumes in the U.S., cash flow generation and growth opportunities in the U.S., China and India make A. O. Smith Corp a defensive stock, Goldman Sachs said in a Wednesday upgrade.

The Analyst

Analyst Samuel Eisner upgraded shares of A.O. Smith from Neutral to Buy and increased the price target from $64 to $73, suggesting 16-percent potential upside.

The Thesis

A.O. Smith's water heater operations alone possesses volume visibility, pricing power and strong balance sheets, which are important criteria for alpha generation in an environment of lumpiness in macro sentiment and margins, Eisner said in a Wednesday note.

Every 1 point of replacement volume will fetch the company 1 cent in earnings per share, the analyst said.

Vsibility on continued double-digit rest-of-the-world growth is high in light of consumer sentiment and low water heater penetration, Eisner said.

Eisner said he expects rest-of-the-world revenues to grow at a CAGR of 17 percent through 2020 alongside improving margins.

A.O. Smith has the strongest balance sheet in Goldman's coverage universe, providing it with capital optionality that could drive upside, the analyst said. Goldman forecast 24-39 percent upside to its 2019 EBITDA estimate from capital deployment alone.

"We see NA water treatment as an attractive area for M&A," Eisner said.

Goldman increased its 2019 earnings per share forecast from $2.90 to $2.96, citing the solid rest-of-the-world growth and increasing margins alongside the buildout of North American water treatment.

The Price Action

A.O. Smith shares are up about 22 percent over the past year.

The stock was up 0.41 percent at the time of publication Wednesday.
Taken from https://www.benzinga.com/analyst-ratings/analyst-color/18/04/11468554/a-o-smith-should-outperform-peers-goldman-sachs-says-in

Goldman Sachs says here's where to invest during a global trade war

Goldman Sachs says here's where to invest during a global trade war
Goldman Sachs recommends companies with large domestic sales exposure during periods of rising global trade tensions.
"Below the surface of the market, trade conflict would benefit the performance of the most domestic-facing U.S. stocks relative to the most foreign-facing firms," Goldman says.

The latest round of tariff retaliation is sparking worries a global trade war will break out between the U.S. and China.

Beijing on Wednesday announced new tariffs on 106 U.S. products, including soybeans, cars, aerospace and defense. The move came a day after the Trump administration detailed its list of Chinese imports it plans to target with tariffs.

As a result, automakers, defense and other major exporter stocks dropped Wednesday.

Goldman Sachs gave its clients a specific game plan last year to play this big moment for the markets.

The firm warned at the time that if President Donald Trump does implement a protectionist trade policy, it could start a global trade war and lead to a market drop.

"One potential risk to our central case is that global growth slows, or profits are hit, by increased US tariffs on trade and the possibility of an escalating global trade war," Goldman's chief global equity strategist Peter Oppenheimer wrote in a note to clients in July.

In the event of the conflict, the strategist recommended investors buy companies with higher domestic sales exposure.

"Below the surface of the market, trade conflict would benefit the performance of the most domestic-facing U.S. stocks relative to the most foreign-facing firms," he wrote.

Here are seven companies in Goldman's domestic sales basket that the firm recommended.


Note: Goldman's domestic sales basket list is as of March 1.

Shares of CVS Health, Dollar General, Public Storage and Verizon all rose Wednesday morning amid a big market decline. CSX was down more than 1.5 percent.
Taken from https://www.cnbc.com/2018/04/04/goldman-sachs-on-where-to-invest-during-a-global-trade-war.html