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Otis Worldwide Corp Ordinary Shares OTIS

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Morningstar’s Analysis

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Otis Echoes Schindler's Sentiment for Short-Term Slowdown in China but Healthy Long-Term Market

Analyst Note

| Denise Molina, CFA |

Otis reported a solid third quarter with organic revenue up 8% and adjusted EBIT margin up 20 basis points year over year, while management increased full-year 2021 guidance. The shares however, were down 4% after management echoed peer Schindler’s view that the Chinese elevator market was likely to go through a period of short-term demand slowdown with a potentially flat or worse market in 2022, due to tightening government controls on expanding credit to the property sector. We estimate about 13% of the company’s profits come from the new installation market in China, also a feeder for its long-term service profits. The government will eventually loosen credit; however, we think there is more uncertainty in long-term underlying demand due to signs of speculative investments underpinning some of the recent robust growth, as well as a more mature urbanization rate than in previous market recoveries. We expect to make changes to our forecasts but shouldn't significantly impact our fair value estimate. Our wide moat rating remains intact.

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Company Profile

Business Description

Otis is the largest global elevator and escalator supplier by revenue with around one quarter of share excluding Japan. In 1854 Otis' founder and namesake, Elisha Graves Otis, invented a safety mechanism that prevented elevators from falling if the hoisting cable failed.The company's product and service lifecycle begins with installations of elevator units in new buildings, later selling maintenance services on the units, and eventually replacement of the units after the average 15-20 year useful life of an elevator. As the largest global OEM, over decades Otis has built a base of 2 million elevators under service. Its business model is much the same as that of its competitors Kone, Schindler, and Thyssenkrupp.

One Carrier Place
Farmington, CT, 06032
T +1 860 233-6847
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 69,000