Otis: Strong Maintenance Growth Drove Solid Q1 & Likely Mid-Teens IRR

Company Update (OTIS US) (Buy)

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Highlights

• Q1 results show why Otis is a high-quality growth business

• Maintenance sales grew 7.0% organically, with units up 4.2%

• Service EBIT grew 9% organically after margin expanded again

• China and currency were headwinds, but EPS still grew 5.3%

• We believe shares can return 49% (16.3% p.a.) by 2025. Buy

Introduction

We review our Otis investment case after Q1 2023 results were released on Wednesday (April 26). Otis shares fell 0.9% during the day, but the share price remains 11% higher than a year ago:

Otis Share Price (Last 1 Year)

Source: Google Finance (26-Apr-23).

We have followed Otis, including as part of its former parent United Technologies, for more than 5 years. We first published our research on Otis publicly with a Buy rating in July 2020. Since then, Otis shares have gained 49% (including dividends) in less than 3 years, almost double the return in the S&P 500 index.