Smith (A.O.) Corporation (NYSE: AOS) and Emerson Electric (NYSE:EMR) are both large-cap industrial products companies, but which is the superior stock? We will contrast the two businesses based on the strength of their institutional ownership, valuation, analyst recommendations, earnings, profitability, risk and dividends.

Analyst Recommendations

This is a summary of recent ratings and target prices for Smith (A.O.) Corporation and Emerson Electric, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Smith (A.O.) Corporation 0 2 4 0 2.67
Emerson Electric 1 10 2 0 2.08

Smith (A.O.) Corporation presently has a consensus price target of $69.40, indicating a potential upside of 14.03%. Emerson Electric has a consensus price target of $62.00, indicating a potential downside of 3.00%. Given Smith (A.O.) Corporation’s stronger consensus rating and higher possible upside, equities research analysts plainly believe Smith (A.O.) Corporation is more favorable than Emerson Electric.

Dividends

Smith (A.O.) Corporation pays an annual dividend of $0.56 per share and has a dividend yield of 0.9%. Emerson Electric pays an annual dividend of $1.92 per share and has a dividend yield of 3.0%. Smith (A.O.) Corporation pays out 28.4% of its earnings in the form of a dividend. Emerson Electric pays out 85.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Smith (A.O.) Corporation has raised its dividend for 11 consecutive years and Emerson Electric has raised its dividend for 60 consecutive years. Emerson Electric is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Smith (A.O.) Corporation and Emerson Electric’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Smith (A.O.) Corporation 12.10% 22.25% 11.89%
Emerson Electric 8.89% 22.32% 9.25%

Risk and Volatility

Smith (A.O.) Corporation has a beta of 1.5, suggesting that its stock price is 50% more volatile than the S&P 500. Comparatively, Emerson Electric has a beta of 1.22, suggesting that its stock price is 22% more volatile than the S&P 500.

Insider & Institutional Ownership

74.0% of Smith (A.O.) Corporation shares are held by institutional investors. Comparatively, 70.0% of Emerson Electric shares are held by institutional investors. 1.3% of Smith (A.O.) Corporation shares are held by company insiders. Comparatively, 0.8% of Emerson Electric shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Valuation & Earnings

This table compares Smith (A.O.) Corporation and Emerson Electric’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Smith (A.O.) Corporation $2.86 billion 3.67 $549.50 million $1.97 30.89
Emerson Electric $14.76 billion 2.77 $3.18 billion $2.25 28.41

Emerson Electric has higher revenue and earnings than Smith (A.O.) Corporation. Emerson Electric is trading at a lower price-to-earnings ratio than Smith (A.O.) Corporation, indicating that it is currently the more affordable of the two stocks.

Summary

Smith (A.O.) Corporation beats Emerson Electric on 11 of the 17 factors compared between the two stocks.

Smith (A.O.) Corporation Company Profile

A. O. Smith Corporation operates through two segments: North America and Rest of World. The Company’s Rest of World segment primarily consists of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas, gas tankless and electric water heaters, as well as water treatment products. Both segments primarily manufacture and market in their respective regions of the world. Its North America segment manufactures and globally markets specialty commercial water heating equipment, condensing and non-condensing boilers and water systems tanks. It also manufactures and markets in-home air purification products in China. It serves residential and commercial end markets in North America with a range of products, which include water heaters, boilers and other. It supplies water heaters to the residential market in China with a broad product offering, including electric, gas, gas tankless, heat pump and solar units, as well as combi boilers.

Emerson Electric Company Profile

Emerson Electric Co. is a diversified global manufacturing company, which provides solutions to customers by bringing technology and engineering together in the industrial, commercial and consumer markets around the world. The Company operates through four segments based on the nature of the products and services rendered: Process Management, Industrial Automation, Climate Technologies and Commercial & Residential Solutions. The Company’s principal production operations are electronics assembly, metal stamping, forming, casting, machining, welding, plating, heat treating, painting and assembly. In addition, the Company uses specialized production operations, including automatic and semiautomatic testing, automated material handling and storage, ferrous and nonferrous machining, and special furnaces for heat treating and foundry applications. The Company provides measurement, control and diagnostic technologies for automated industrial processes.

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