Shares of A.O. Smith Corp. fell 4.4% Wednesday, after Boenning & Scattergood downgraded the stock to neutral from outperform following its 38% gain in the last 12 months. The maker of water and air purification products had another strong quarter with per-share earnings climbing 14% and revenue up 10%, “and the fundamental underpinnings of the story (including consistent growth in both North America and China) are firmly intact,” analyst Ryan Connors wrote in a note. But the stock is now trading at a price/earnings ratio of 25 times his revised (upward) 2018 estimate of revenue growth of 9% and EPS growth of 17%, “a modest premium to the water infrastructure peer group average of 24.2 times,” said Connors. Margins for the company’s rest of the world division, which includes China, where it is expanding to second and third-tier cities, continue to be soft at 40 basis points below the year-earlier period, he wrote. Still, the company is one of the highest-quality names in the water infrastructure space and even in the broader industrial space, he said. Shares have gained 24% in 2017, while the S&P 500 has gained 14%.
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