Otis: Shares Down 8% Since March, Despite Solid Q1 Results

Company Update (OTIS US) (Buy): Service growth continues to drive 10%+ EPS growth; 25.6x 2023 EPS is cheap given high cash conversion.

Highlights

• Otis shares fell 4.2% on the day of Q1 results and have fallen further since.

• Q1 results were strong overall, with EBIT up 8.3% and EPS up 10.3%.

• Maintenance’s long-term growth continues and Modernization demand is strong.

• Main negative is a decline in New Equipment orders, due to China and the U.S.

• With shares at $92.12, we see a 48% total return (16.0% annualized). Buy.

Introduction

Otis shares fell 4.2% on the day it released Q1 2024 results two weeks ago (April 24), and is down another 1.3% since, which means the share price is now more than 8% below the 52-week high it reached in March:

Otis Share Price (Last 1 Year)

Source: Google Finance (05-May-24).

We first published our research on Otis with a Buy rating in July 2020, and have included Otis in our “Select 15” model portfolio since its inception in January 2023. We also hold Otis shares in real life and added modestly to our holding on the day of Q1 results. Since our initial rating, Otis shares have gained more than 70%.

We believe Q1 results support our investment case, and Otis shares continue to be attractive. (For a recap our investment case, see the first Substack article we published on Otis last April.)

(The rest of this article requires a paid subscription, which cost only $10. Otis’s share price was $56.50 when we initiated our Buy rating, so each Otis share has now paid for this more than 3.5 times over.)