Otis: Strong Q3 Results, China Slowing But Likely Just Temporarily

(Preview) Company Update (OTIS US) (Buy)

Summary

• Otis has continued to do well operationally in Q3, with sales growing 8.1% and EBIT growing 10.3% organically; currency was a tailwind.

• 2021 outlook has been raised, with sales growth now expected to be 8.5-9.0% and EPS growth expected to be 17%. The implied P/E is 28.8x.

• Buying out minorities in Zardoya Otis, a subsidiary in Southern Europe, is expected to add a mid-single-digit percentage to EPS in 2023.

• The Chinese market is expected to be flat in 2022 but recover thereafter; a prolonged downturn will hurt, but China is less than 20% of EBIT.

• With shares at $85.38, we expect a total return of 58% (16.5% annualized) by 2024 year-end. Buy.

Introduction

We review our Otis Worldwide Corporation investment case.

We initiated our Buy rating on Otis in July 2020, and shares have returned 53.5% (including dividends) since then, including 27.5% year-to-date.

The main developments since our last review in July included:

• An agreement to buy out minority shareholders in Zardoya Otis, at an equi…