A. O. Smith reports tomorrow with shorts trimmed and options bulls taking charge

A. O. Smith heads into its Q3 earnings call on October 29 with the short position meaningfully lighter than a week ago and options traders now firmly in the call camp, a notable shift from the bearish setup documented here last week.

Short interest has pulled back from the year-high flagged in these pages on October 21. It stood at 10.1% of the free float then. It is now 9.6%, a drop of around 4% on the week as shorts covered ahead of the print. That easing is material, not cosmetic. The FINRA fortnightly count still shows 10.99 million shares short with days to cover near 7, so the position remains substantial. But the directional move this week is clear: bears are reducing rather than adding. Availability has also loosened sharply, now at 272%, up from around 191% a week ago, meaning the lending pool has grown considerably more relaxed. Cost to borrow is effectively unchanged at 0.61%, confirming there is no stress in the borrow market as the earnings date arrives.

Options positioning has flipped in a way that stands out. The put/call ratio has fallen to 0.69, roughly 1.4 standard deviations below its 20-day average of 0.90. A week ago the PCR was sitting near parity with that average. The drift lower over the past two weeks is steady and consistent, with the ratio falling from above 1.10 in late September to where it is now. That reflects a genuine build in call interest relative to put hedges, the opposite of the defensive lean you might expect in the final 24 hours before a print on a name with a contested thesis.

The Street remains cautious on the fundamentals. Oppenheimer kept its Outperform rating last week but trimmed its target to $72 from $75. The mean target across analysts is $66.20, against a current price of $62.06, a gap of roughly 7%. The trajectory of revisions has been consistently downward for months. JP Morgan holds an Underweight with a $60 target. Stifel downgraded to Hold a week ago. Citigroup is Neutral at $64. The bull case rests on A. O. Smith's dominant North American share, pricing actions of 4% to 7%, and a replacement-heavy revenue base. The bear case focuses on flat to negative domestic volumes, a China business where organic sales fell 15% year-on-year in Q1, and continued margin pressure from steel and freight costs. The ORTEX short score has eased to 64.2 from 68 at the start of the week, still elevated in absolute terms but moving in the right direction for longs. The stock is up 4.2% on the week to $62.06, recovering from a sharper drawdown in October and now tracking closely with sector peers: BLDR gained 5.2% and SSD rose 6.1% on the week, while AWI fell 8.3%.

Wikipedia attention for A. O. Smith is running at a z-score of 3.1 against its own trailing 90-day history, the highest retail attention reading in the dataset's recent window. That kind of spike in the 24 hours before an earnings print is typically noise rather than signal, but it does confirm the stock is drawing more eyeballs than usual into the release.

The last earnings print, Q2 on July 30, sent the stock down 3.1% on the day before recovering 1.5% over the following five days. The question for tomorrow is whether the China update and any revision to full-year guidance change the calculus for the shorts who covered this week, or whether the call-side positioning in options proves better informed.