Last Update08 Oct 25Fair value Increased 1.01%
Analysts have raised their price target for Otis Worldwide by $1.00. They cite improved profit margins and updated industry ratings as factors supporting modest upside expectations.
Analyst Commentary
Analyst opinions on Otis Worldwide have recently reflected a balance of optimism about the company’s operational improvements and caution around growth prospects and valuation multiples.
Bullish Takeaways- Bullish analysts highlight improved profit margins, which supports the case for a higher valuation multiple.
- The company received an upgrade to an "Overweight" rating, a development that signals increased confidence in near-term performance.
- Recent price target increases reflect expectations for modest upside relative to current levels.
- Updated industry ratings indicate that Otis is better positioned compared to some peers in the current market environment.
- Cautious analysts note that Otis’s organic revenue and earnings growth profile is considered only "average" for the industry.
- There is skepticism about the potential for a significant re-rating in the company’s valuation multiple, which may limit upside.
- Forecasted gains are described as "modest," with the share price believed to be close to fair value under current consensus projections.
- Some analysts initiated with a "Hold" rating, citing limited drivers to push the target price meaningfully above the current trading level.
What's in the News
- Otis introduced new Arise MOD Prime and MOD Plus modernization solutions for low- to mid-rise buildings across several European markets, focusing on enhanced safety, efficiency, and flexibility for customers (Key Developments).
- The company secured a contract to provide 265 Gen2 Prime elevators for Mountain View Real Estate Development projects in New Cairo and 6th of October City, with elevators featuring premium finishes and modern aesthetics (Key Developments).
- Otis was selected by Singapore's Land Transport Authority to supply 336 heavy-duty escalators and moving walkways, together with 186 Gen3 elevators for the new Cross Island MRT Line, supporting enhanced reliability for the backbone of Singapore's public transport network (Key Developments).
- Otis completed a share buyback tranche between April and June 2025, repurchasing 3.14 million shares for $300 million, completing its previously announced buyback program (Key Developments).
- The company revised its 2025 full-year guidance, now expecting net sales of $14.5 to $14.6 billion, with organic new equipment sales projected to decline around 7% while service sales are forecasted to rise about 5% (Key Developments).
Valuation Changes
- Fair Value Estimate has risen slightly from $99.23 to $100.23, indicating a modest increase in perceived intrinsic value.
- Discount Rate has increased from 8.50% to 8.62%, reflecting a slightly higher implied cost of capital in updated models.
- Revenue Growth expectations have edged down from 4.95% to 4.89%, pointing to marginally softer projections for top-line expansion.
- Net Profit Margin has improved marginally from 11.89% to 11.96%, suggesting better expected profitability.
- Future P/E Ratio has moved up from 24.21x to 24.43x, indicating a small increase in market valuation relative to expected earnings.
Key Takeaways
- Modernization and global service expansion drive high-margin recurring revenue, leveraging aging infrastructure trends and strong customer retention for sustained growth.
- Innovation in smart, energy-efficient solutions and major cost-saving initiatives enhance profitability and position Otis for premium projects and expanded market share.
- Weakness in China, slower commercial real estate demand, service disruption risks, supply chain issues, and declining construction all threaten Otis's long-term growth and profitability.
Catalysts
About Otis Worldwide- Engages in manufacturing, installation, and servicing of elevators and escalators in the United States, China, and internationally.
- The accelerating momentum in modernization orders-up 22% in the quarter and supported by a record-high backlog-positions Otis to benefit from the global trend of aging building infrastructure, which is expected to drive a multi-year growth cycle for modernization and associated high-margin service revenue, positively impacting both revenue and earnings.
- Sustained expansion of Otis's service portfolio, supported by strong customer retention, pricing power, and geographic growth (especially in Asia and the Americas), continues to increase high-margin recurring revenue, which has already contributed to record service margins and is likely to support further net margin expansion.
- Ongoing investments in energy-efficient, connected elevator systems and services capitalize on global demand for sustainable and smart building solutions, allowing Otis to compete for premium projects and command higher pricing, supporting both revenue growth and margin improvement.
- Significant cost-saving initiatives, including the UpLift and China transformation programs, are on track to deliver over $240 million in annual run-rate savings, improving operating leverage and underpinning stronger net margin and earnings growth even amid near-term pressure in new equipment sales.
- Robust growth in the Americas and Asia-Pacific markets for new equipment-excluding China-aligns with long-term urbanization and emerging market expansion, increasing Otis's installed base and providing future tailwinds for both equipment sales and high-margin service revenue streams.
Otis Worldwide Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Otis Worldwide's revenue will grow by 5.0% annually over the next 3 years.
- Analysts assume that profit margins will increase from 10.7% today to 11.9% in 3 years time.
- Analysts expect earnings to reach $1.9 billion (and earnings per share of $5.17) by about September 2028, up from $1.5 billion today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.6x on those 2028 earnings, up from 22.8x today. This future PE is lower than the current PE for the US Machinery industry at 24.7x.
- Analysts expect the number of shares outstanding to decline by 1.75% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.5%, as per the Simply Wall St company report.
Otis Worldwide Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Persistent weakness and heightened competition in China are resulting in a significant decline in New Equipment sales and negative pricing impact, with a more than 20% drop in orders and ongoing margin compression-threatening both revenue growth and net margins long-term if China fails to stabilize.
- Broader industry shifts toward remote work and softer demand for commercial real estate, especially office buildings in developed markets, contribute to sluggish new installation demand and prolonged project delays in the Americas and EMEA, limiting top-line growth and installed base expansion.
- Increased reliance on the Service segment for profitability creates risk if building owners adopt new maintenance technologies, competitors' IoT-enabled solutions, or alternative vertical transportation systems, which could erode Otis's recurring service revenues and profitability over time.
- Accelerating supply chain challenges, including tariff headwinds, labor tensions, and project execution slowdowns, have led to temporary production facility furloughs, cash flow timing issues, and higher compliance costs-putting pressure on operating profit and free cash flow conversion.
- Demographic and secular shifts, such as plateauing urbanization in developed economies and declining construction in key regions like Europe and Japan, threaten to further limit the long-term pipeline for both new installations and modernization, hindering sustained revenue and earnings growth.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $100.923 for Otis Worldwide based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $134.0, and the most bearish reporting a price target of just $90.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.4 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 24.6x, assuming you use a discount rate of 8.5%.
- Given the current share price of $88.01, the analyst price target of $100.92 is 12.8% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Read more narratives
There are no other narratives for this company.
View all narratives