Otis Shares Have Lagged, But The Service Opportunity Could Still Be Underappreciated

I wasn’t all that excited about the opportunity in Otis Worldwide (OTIS) shares in late September, and the shares have lagged since then – rising less than 5% against a 20% move for the wider industrial sector and 20%-plus moves in other building equipment stocks like Johnson Controls (JCI), but doing about 10% better than Kone (OTCPK:KNYJY), which I also thought was expensive, and Schindler (OTCPK:SHLAF) in the elevator niche.

Looking at 2021, while Otis does have a decent backlog supporting new equipment revenue, I’m concerned about weakness across the construction space, including multifamily, office, and hospitality. I’m also concerned the assumptions across the industrial sector from management teams that they’ll just be able to pass on any material cost headwinds in the year. I’m more bullish on the opportunities to leverage IoT to drive more lifecycle revenue and gain maintenance share from independents, but that’s going to be a multiyear story.

Otis did beat and raise, and the underperformance has improved the relative valuation argument. I still don’t really like the stock here, but I could see non-resi equipment names getting a little more love later in the year, and this is a borderline name today.

 

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Otis Shares Have Lagged, But The Service Opportunity Could Still Be Underappreciated