A. O. Smith Corporation (AOS): A Bull Case Theory

We came across a bullish thesis on A. O. Smith Corporation (AOS) on Iceman Capital’s Substack. In this article, we will summarize the bulls’ thesis on AOS. A. O. Smith Corporation (AOS)’s share was trading at $65.74 as of 10^th June. AOS’s trailing and forward P/E were 18.11 and 17.18 respectively according to Yahoo Finance.

O. Smith operates a capital-light, high-ROIC business rooted in the mature but rational North American water heater market, where 80–85% of volumes are replacement-driven. Its core North America business enjoys pricing power within an oligopolistic structure and benefits from a hybrid distribution strategy that offers stability and reach.

Commercial dominance, via the Lochinvar brand, and ongoing product innovation in condensing and heat pump technologies further solidify its moat. However, while management has been disciplined in M&A and execution, growth beyond core water heaters has been mixed. The tankless segment has been slow to scale, and international expansion—particularly in China—has underwhelmed due to macro weakness, pricing pressure, and share losses in premium categories. Water treatment, though promising with a 12% CAGR and tailwinds like PFAS regulation, remains a smaller part of the mix.

Financially, AOS has returned significant capital to shareholders, but conservative balance sheet management leaves room for modest leverage that could enhance buybacks or enable more impactful M&A. A base-case scenario—3.8% revenue CAGR, modest margin expansion, and no M&A—yields 5% EBIT CAGR and ~$75 intrinsic value, implying a ~10% IRR.

While upside may be capped without stronger international or adjacent category performance, AOS’s structural advantages, durable cash flows, and potential capital deployment shifts support a solid, if not spectacular, investment case.

Most of its strengths are well-understood by the market, but optionality around smarter balance sheet use or transformative M&A could surprise to the upside.

Previously, we covered a standout bullish thesis on Shift4 Payments (FOUR) by Iceman Capital, which emphasized the transformative Global Blue acquisition, international expansion, and high-margin growth in luxury travel. In contrast, Iceman’s thesis on A. O. Smith (AOS) centers on its stable North American water heater dominance, capital discipline, and modest upside from balance sheet optimization and water treatment growth.

O. Smith Corporation (AOS) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held AOS at the end of the first quarter which was 35 in the previous quarter. While we acknowledge the risk and potential of AOS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article was originally published at Insider Monkey.