Otis: Down 10% Since July; China & Macro Fears Overstated

Company Update (OTIS US) (Buy)

Highlights

• New Equipment market is down, but earnings are driven by Services

• China is less than 20% of Otis; Maintenance sales there grow strongly

• Large backlog means that Otis New Equipment sales are still growing

• Shares are at 25.3x 2022 EPS; 2023 outlook is for ~10% EPS growth

• At $81.70, we see a 66% total return (17.2% p.a.) by end of 2026. Buy

Introduction

We review our Otis investment case after shares have fallen more than 10% since the end of July, and following an appearance by CEO Judith Marks at an investor conference last week (September 14):

Otis Share Price (Last 1 Year)

Source: Google Finance (20-Sep-23).

We have followed Otis (including as part of United Technologies) for more than 5 years, and first published our research on Otis online with a Buy rating in July 2020. Since then Otis shares have gained nearly 51% (including dividends).

We believe Otis shares are attractive. Investors may fear the market decline in New Equipment orders, which are expected to shrink by 10% in Chin…