We assign AOS a $77 target price based on 19x our 2026 adj. EPS estimate of $4.05. We value AOS at a slight discount to what we view as its peer average of ~20x and note the wide range of valuation for companies in the peer set (from 13x to 48x 2025 EPS estimates) as indicative of idiosyncratic end markets among publicly traded peers. In this context, we view AOS as more stable than competitors with relatively cyclical industrial exposure, but with a lower outlook for growth and margin than peers with more technology-driven portfolios.

To the downside, AOS generates ~25% of its sales in China, and if revenue growth/margin expansion experiences higher-than-expected volatility, the shares could underperform our target price. Additionally, we view the N.A. water treatment end market as highly competitive, with low barriers to entry, and could limit AOS's ability to enhance profitability through pricing.
To the upside, AOS could surpass our target price if the company's commercial water heater and boiler businesses recover faster than our expectation. Additionally, if China's economic recovery or N.A. water treatment penetration occurs more rapidly than our expectation, AOS could materially outperform our target price.