UPDATE: Sterne Agee Initiates Buy, $48 PT on AO Smith

Sterne Agee initiates coverage on AO Smith Corp.

with a Buy rating and a target price of $48 per share on a stock that it sees offering growth potential and downside protection. Sterne Agee says, “AOS's North American business, ~70% of the company's sales in 2010, is dominated by replacement demand – estimated at around 93% in the current environment (and 80% historically). Given the last few years' downturn in new construction, there appears to be little risk of additional major declines in shipments. On the other hand, whenever construction recovers, we believe AOS will participate with higher volumes and potentially significant margin accretion.” AOS closed at $39.44 per share on Monday.