One of the largest elevator and escalator companies in the world gets new coverage from an analyst with a bullish outlook and potential for returned capital to shareholders.
The Otis Worldwide Analyst: RBC Capital analyst Nick Housden initiates coverage on Otis Worldwide Corp OTIS with an Outperform rating and $95 price target.
The Analyst Takeaways: Otis’s underperformance of recent years is behind the company, according to Housden.
“Otis has operationally underperformed peers in the past decade due to a weaker exposure to a booming China, historical underinvestment and the unwinding of previous overearnings,” Housden said.
Related Link: What Does Otis Worldwide’s Debt Look Like
The company has low capital requirements and a competitive position that could help exceed what Housden calls are conservative estimates from the company.
Organic growth from Otis Worldwide is seen similar to peers by the analyst, making up for a shortfall since 2016.
Otis gets 80% of profits from the defensive service business, which Housden notes is a key for the company. Low capex is a big positive that could make valuation attractive.
“We calculate that through 2025 Otis will generate $4 billion in cash flow above what it needs to fulfill its capex, dividend, buyback and debt repayment targets,” Housden said.
The analyst sees the extra cash flow being returned to shareholders with a possible dividend increase or buying back shares.
A price target of $95 is based on a DCF analysis. The analyst sees downside risk to $65 and potential upside levels of $130 for Otis shares.
OTIS Price Action: Shares of Otis are up 2.31% to $84.25 on Wednesday. at publication.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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