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A. O. Smith Corporation (AOS) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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A. O. Smith Corporation (AOS)

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Intrinsic Value (DCF)

Current$71.99
→
Intrinsic$64.53
-10%
$44.16$64.53$103.26
Market implies 13% growth for 5 years
AOS appears fairly valued — current price aligns with our DCF estimate.
At $72, the market prices in 13% annual cash flow growth — a moderate expectation aligned with historical trends (10%).
Range: Bear $44 → Bull $103. Current price implies expectations above the base case, closer to bull expectations.
Discount ↓Growth →6%8%10%12%
8%$77$84$91$99
10%$55$59$65$70
12%$42$46$50$54
14%$35$37$40$44

Bull Case

  • Bull case ($103) offers 43% upside at 12% growth, 9% discount
  • Conservative 10% growth assumption is achievable based on track record

Bear Case

  • Bear case ($44) implies 39% downside at 8% growth, 12% discount
  • Price reflects 13% growth expectations vs 10% historical — high bar to clear
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5-Year Free Cash Flow Projection

Year 1$522.76M
Year 2$576.79M
Year 3$636.39M
Year 4$702.16M
Year 5$774.73M
Terminal$11.40B

📐 Model Inputs

Growth Rate10.3%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$473.80MTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is AOS stock undervalued or overvalued?
🟡 FAIRLY VALUED

AOS trades at $71.99, within 10% of our $64.53 intrinsic value estimate. At 10.0% WACC and 10.3% FCF growth, the market is pricing in assumptions roughly aligned with the 5-year historical CAGR. The valuation range spans $45.84 (bear) to $90.06 (bull).

What is AOS's intrinsic value?

Using a 5-year DCF model: Base FCF of $474M, projected at 10.3% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 10.0% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $-23M net debt and dividing by 0.15B shares: Bear $45.84 | Base $64.53 | Bull $90.06. Current price $71.99 implies -6% to base case.

How is AOS's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 10.3% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=10.0%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($9.47B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 20.0x.