A. O. Smith (AOS) benefits from its leadership in the replacement-driven water heater market, mix-accretive boiler growth, and expansion into water treatment and these dynamics are expected to continue driving core growth and margins, Oppenheimer said in a note on Tuesday.

The company's region-specific manufacturing model largely mitigates tariff risk and may prove to be a competitive advantage if 25% Mexico tariffs are imposed, according to the note.

The firm said that energy-efficiency regulations serve as growth catalysts for A. O. Smith and 2026 requirements for high-efficiency commercial water heaters and proposed 2029 residential standards for heat pumps, are expected to create significant medium-term opportunities for the company.

"We also believe North American franchise value exceeds consolidated enterprise value -- in turn offering needle-moving upside potential on A. O. Smith-China recovery and the secular runway of A. O. Smith-India," the firm added.

Oppenheimer upgraded its rating on A. O. Smith's stock to outperform from perform with a price target of $88.

Price: 70.64, Change: +2.01, Percent Change: +2.93