Financial Contrast: Watts Water Technologies (NYSE:WTS) and A. O. Smith (NYSE:AOS)

A. O. Smith (NYSE:AOS) and Watts Water Technologies (NYSE:WTS) are both industrials companies, but which is the superior investment? We will compare the two businesses based on the strength of their institutional ownership, dividends, risk, earnings, profitability, analyst recommendations and valuation.

Profitability

This table compares A. O. Smith and Watts Water Technologies’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
A. O. Smith	13.15%	27.88%	15.21%
Watts Water Technologies	14.34%	19.16%	13.78%

Dividends

A. O. Smith pays an annual dividend of $1.44 per share and has a dividend yield of 2.5%. Watts Water Technologies pays an annual dividend of $2.52 per share and has a dividend yield of 0.7%. A. O. Smith pays out 40.0% of its earnings in the form of a dividend. Watts Water Technologies pays out 22.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. A. O. Smith has raised its dividend for 31 consecutive years and Watts Water Technologies has raised its dividend for 13 consecutive years. A. O. Smith is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility & Risk

A. O. Smith has a beta of 1.16, meaning that its share price is 16% more volatile than the S&P 500. Comparatively, Watts Water Technologies has a beta of 1.13, meaning that its share price is 13% more volatile than the S&P 500.

Insider & Institutional Ownership

76.1% of A. O. Smith shares are held by institutional investors. Comparatively, 95.0% of Watts Water Technologies shares are held by institutional investors. 0.5% of A. O. Smith shares are held by company insiders. Comparatively, 1.0% of Watts Water Technologies shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Analyst Ratings

This is a breakdown of current recommendations for A. O. Smith and Watts Water Technologies, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
A. O. Smith	2	5	2	0	2.00
Watts Water Technologies	0	6	5	0	2.45

A. O. Smith currently has a consensus target price of $67.75, indicating a potential upside of 18.05%. Watts Water Technologies has a consensus target price of $367.70, indicating a potential upside of 4.34%. Given A. O. Smith’s higher probable upside, research analysts plainly believe A. O. Smith is more favorable than Watts Water Technologies.

Valuation & Earnings

This table compares A. O. Smith and Watts Water Technologies”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
A. O. Smith	$3.83 billion	2.04	$546.20 million	$3.60	15.94
Watts Water Technologies	$2.44 billion	4.82	$340.80 million	$11.45	30.78

A. O. Smith has higher revenue and earnings than Watts Water Technologies. A. O. Smith is trading at a lower price-to-earnings ratio than Watts Water Technologies, indicating that it is currently the more affordable of the two stocks.

Summary

Watts Water Technologies beats A. O. Smith on 9 of the 17 factors compared between the two stocks.

About A. O. Smith

A. O. Smith Corporation manufactures and markets residential and commercial gas and electric water heaters, boilers, heat pumps, tanks, and water treatment products in North America, China, Europe, and India. The company offers water heaters for residences, restaurants, hotels, office buildings, laundries, car washes, and small businesses; boilers for hospitals, schools, hotels, and other large commercial buildings, as well as homes, apartments, and condominiums; and water treatment products comprising point-of-entry water softeners, well water solutions, and whole-home water filtration products, and point-of-use carbon and reverse osmosis products for residences, restaurants, hotels, and offices. It also provides commercial water treatment and filtration product; expansion tanks, commercial solar water heating systems, swimming pool and spa heaters, and related products and parts; and electric wall-hung, gas tankless, combi-boiler, and heat pump and solar water heaters. The company offers its products under the A. O. Smith, State, Lochinvar, Hague, Water-Right, Master Water, Atlantic Filter, and Water Tec brands. It distributes its products through independent wholesale plumbing distributors, as well as to retail channels consisting of hardware and home center chains, and manufacturer representative firms; and offers Aquasana branded products directly to consumers through e-commerce channels. A. O. Smith Corporation was founded in 1874 and is headquartered in Milwaukee, Wisconsin.

About Watts Water Technologies

Watts Water Technologies, Inc., together with its subsidiaries, supplies products and solutions that manage and conserve the flow of fluids and energy into, through, and out of buildings in the commercial, industrial, and residential markets in the Americas, Europe, the Asia-Pacific, the Middle East, and Africa. The company offers residential and commercial flow control and protection products, including backflow preventers, water pressure regulators, temperature and pressure relief valves, thermostatic mixing valves, leak detection and protection products, commercial washroom solutions, and emergency safety products and equipment for plumbing and hot water applications. It also provides heating, ventilation, and air conditioning and gas products comprising commercial boilers; water heaters and heating solutions; hydronic and electric heating systems for under-floor radiant applications; custom heat and hot water solutions; hydronic pump groups for boiler manufacturers and alternative energy control packages; and flexible stainless-steel connectors for natural and liquid propane gas in commercial food service and residential applications. In addition, the company offers drainage and water re-use products, such as drainage products, engineered rainwater harvesting solutions for commercial, industrial, marine, and residential applications; connected roof drain systems; and water quality products that include point-of-use and point-of-entry water filtration, conditioning, and scale prevention systems for commercial, marine, and residential applications. The company sells its products to plumbing, heating, and mechanical wholesale distributors and dealers; original equipment manufacturers; specialty product distributors; and do-it-yourself and retail chains, as well as wholesalers and private label accounts. Watts Water Technologies, Inc. was founded in 1874 and is headquartered in North Andover, Massachusetts.