Otis: Strong Q2 Means Likely 15-16% EPS Growth In 2021; Buy (Preview)

Summary

• Otis' Q2 showed a strong rebound from COVID-impacted 2020, with Net Sales up 15% and EBIT up 17.5% organically; H1 EPS is up 29%.

• New Equipment sales rebounded by 25% organically; Maintenance & Repair sales were up 7.5% organically after a 3% growth in units.

• 2021 outlook has been revised up significantly, and Otis now expects organic sales growth of 7.5-8.0% and EPS growth of 15-16%.

• Relative to the high-end of the new 2021 outlook, Otis stock is at a 30x P/E and a 3.9% Free Cash Flow Yield. The Dividend Yield is 1.1%.

• With shares at $88.52, we expect a total return of 45% (11.6% annualized) by 2024 year-end. Buy.

Introduction

We review Otis Worldwide Corporation's Q2 2021 results released this morning (July 26). Shares are currently down 0.9% (as of 10 am EST).

We initiated our Buy rating on Otis in July 2020, and have been reiterating it regularly since. Thus far Otis stock has gained 58.2% (including dividends. We also have had a Buy rating on KONE Oyj, Otis's closest peer. Kone r…