Sterne Agee Downgrades A.O. Smith Corp.

Sterne Agee is downgrading A.O. Smith Corp. AOC to Neutral from Buy. It has a $43 price target on shares. In a note sent to investors Sterne Agee writes, "We are downgrading AOS to Neutral from Buy as we believe that shares are likely to consolidate in the near term as AOS closes on the divestiture of its EPC business. Additionally, with the company receiving $700M in cash and $175M in stock, we believe that while the avenues for reinvestment of the proceeds appear robust, the timing of the redeployment remains uncertain. While management noted that there are plenty of markets for investment, particularly in water infrastructure in developed markets and water heating and treatment in overseas regions, we believe that multiple acquisitions will likely have to be accomplished over an extended period to account for the loss in earnings from the divestiture. Also, as shares are within 1% of our $43 price target, we believe at the current valuation the risk/reward is not as attractive given the uncertainty of timing for cash redeployment." Shares of AOS lost 52 cents yesterday to close at $42.55.