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Otis Worldwide Corp Ordinary Shares OTIS

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Morningstar’s Analysis

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Impressive Margin Expansion for Otis in a Down Year, but Shares Look Pricey

Analyst Note

| Denise Molina, CFA |

Otis' full-year 2020 results and 2021 outlook are in line with our expectations, so we do not expect to make material changes to our forecasts or $60 fair value estimate. Our wide moat rating remains intact, but we view shares as pricey at current levels. Otis' 2020 3% revenue decline and 70-basis-point EBIT margin expansion are impressive compared with peer Kone's 1% revenue growth but only 30-basis-point increase. For the elevator companies we cover, top-line growth in 2020 was driven largely by pandemic-related changes in demand rather than company actions. However, cost control and margin expansion were more within their control. Several companies we cover, including Otis, came into the pandemic year with cost-saving plans already drawn up because of entirely separate circumstances. The pandemic helped accelerate those cost-cutting programs, and in the case of Otis enabled it to produce 70 basis points of margin expansion in a year with revenue declines.

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Company Profile

Business Description

Otis is the largest global elevator and escalator supplier by revenue. In 1854 Otis’ founder and namesake, Elisha Graves Otis, invented a safety mechanism that prevented elevators from falling if the hoisting cable failed. 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. Otis operates a razor and blade model where it manufactures and installs elevators at a low profit to build an installed base that will provide high profits from service in the years thereafter.

One Carrier Place
Farmington, CT, 06032
T +1 860 233-6847
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 69,000