Baird has downgraded A. O. Smith (NYSE:AOS ) from outperform to neutral and lowered its price target from $72 to $60 (8.1% upside) as it turns cautious on the process control sector.

We have turned more cautious on AOS against a number of competing dynamics (both positive and negative), wrote Baird analysts.

While the stock has a more stable earnings stream relative to other industrials, Baird analysts argue that "estimate pressure potential, ongoing competitive concerns (even if overblown, in our view), optics around yoy volume declines/uncertain timing of normalization (potential for cumulative ~12-15% decline in residential WH volumes is a steep sentiment hurdle), and limited catalysts prevent the stock from working in the short-term."

AOS is among a series of stocks, including Franklin Electric (FELE), Graco (GGG) and Hayward Holdings (HAYW), which received a ratings downgrade at Baird given the limited catalysts against upcoming volume deceleration curves, consumer exposure, and less earnings power optionality.

Baird's rating is line with SA Quant rating of hold. SA Authors rate the industrial products company as buy.

A. O. Smith (AOS) shares slipped over 4% on Jul 08, after Jefferies analyst raised question over the firm's outlook for commercial water heaters in light of the recent industry data that suggested contraction.

Analyst Saree Boroditsky wrote, "Data from the Air-Conditioning, Heating, and Refrigeration Institute shows shipments of commercial water heaters were down 10% year-over-year in May. Management is looking for commercial water heaters to be flat to slightly down for the full year 2022, which we believe is likely to prove optimistic as this implies ~11-13% Y/Y growth for the remainder of the year." Boroditsky also rate the firm as hold.

The company reported better-than-expected Q1 results and is scheduled to report its Q2 earnings on July 28, 2022.

Shares have dropped ~4% today and 25% over the past year.