By: Carter Copeland
We’re initiating coverage of Otis with a Buy rating and a $83 price target, which is based on ~16x our 2023 EBITDA estimate. Financially, Otis’ return profile steadily deteriorated over most of last decade. After enjoying a decade and a half of significant margin expansion (which peaked in 2011), Otis spent the rest of the 2010s seeing margins compress. High-margin service work in Europe saw higher rates of cancelation and increasing sales of new equipment in China came with far lower service contract conversion. As a “churn” business that depends on converting new sales into long-term service contracts, these trends were harmful for all in the elevator industry, but for Otis in particular.