Otis: The Better Elevator Stock, As Confirmed By Strong H1 Results

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

Summary

• Otis stock has fallen by 20%+ in the past year after elevator companies have been hit by the slowdown in China and higher input costs.

• Otis has lower exposure to China than main rival Kone and is still expecting to grow its EPS by 4-7% this year despite FX headwinds.

• Otis' all-important Maintenance revenues are growing at mid single digits and accelerating, and it is gaining share in New Equipment.

• We believe Otis will achieve an EPS CAGR of just under 10% in 2021-25, while the stock is too cheap at 23x guided 2022 EPS.

• With shares at $72.72, we expect an exit price of $127 and a total return of 81% (19.9% annualized) by 2025 year-end. Buy.

Introduction

We review our Otis Worldwide Corporation investment case after shares have fallen by more than 20% since peaking almost exactly a year ago.

We initiated our Buy rating on Otis in July 2020. While shares have gained 32% (including dividends) in the two years since, more than two thirds of this gain occurred in 2020, and their recent wea…