A. O. Smith enters the back half of the week having just handed short sellers their most compelling data point of the year.
This morning's Q1 print was a clean miss across the board. Adjusted EPS came in at $0.85 against a $0.94 consensus estimate — a 10-cent shortfall. Revenue of $945.6M also trailed the $977.7M estimate. Worse, management cut full-year GAAP EPS guidance to $3.60–$3.90 from a prior $3.85–$4.15, while also trimming the top end of its sales range to $3.90–$4.00B. The midpoint of the new adj. EPS band ($3.85) sits fractionally below the $3.98 Street estimate. That combination — a Q1 miss, a guidance cut, and a margin band that trails consensus — is the kind of setup that accelerates positioning shifts.
Short sellers were already moving before the results landed. Short interest jumped sharply on April 29, up 10% in a single session to 6.5% of the free float — the highest reading in the past six weeks. The week-on-week build is nearly 7%, and over the past month positions have grown 16%. Availability in the lending market tightened meaningfully alongside the build, though cost to borrow remains modest at 0.52% — up roughly 21% on the week but still far from levels that would create real friction for new shorts. The ORTEX short score moved to 54.5 on April 29, a notable step up from the mid-48s where it had been anchored for most of the month. That score jump, combined with the position build, suggests the shorts had some read on the direction of travel heading into today.
Options positioning corroborates the caution. The put/call ratio has been running above 1.23 all week — well above its 20-day average of 0.91. That's not at extreme levels (the 52-week high is 2.10), but the sustained defensive skew is consistent with hedgers loading up ahead of a print they weren't certain about. The PCR had been running sub-0.65 through much of March, making the April pivot toward puts the clearest behavioural shift in recent months.
The analyst community signalled doubts before the numbers arrived. Stifel trimmed its target to $78 from $85 on April 14, maintaining Buy but flagging concern — that target now looks stretched at a 22% premium to the $63.68 close. Goldman Sachs lowered its Sell-rated target to $61 from $69 on April 13, and Citigroup cut its Neutral target to $74 from $78 on the same day. The broad direction was clearly one of de-risking. The consensus holds at Hold with seven analysts there, and the EV/EBITDA multiple has drifted lower — down over the past 30 days — as the market has already been pricing in softer fundamentals. Factor scores add context: EPS momentum over both 30-day and 90-day windows ranks in the 23rd and 35th percentiles respectively, confirming the estimate-revision trend was already moving the wrong way into today.
The bear case rests on three compounding pressures: regulatory shifts in U.S. water heater standards that may have pulled forward demand and created a hangover; ongoing weakness in China, where a strategic review is still unresolved; and trade tensions that complicate the cost structure. The bull case anchors on the balance sheet, buyback activity, and the possibility that a China divestiture or restructuring crystallises value that the current price doesn't reflect. The Smith Family Voting Trust holds nearly 19% of shares, which limits the likelihood of any hostile pressure but also concentrates governance.
What to watch now is whether the guidance cut proves the floor or the ceiling — specifically, whether management's China strategic review produces a concrete announcement before the next quarterly update, and how the Street recalibrates targets following a miss this wide relative to a consensus that was already being trimmed.
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