Otis Worldwide: Boring can be good.

Otis Worldwide Corporation is the world’s leading elevator and escalator company, built around a large installed base and a business model that generates recurring revenue from service and maintenance. The company moves billions of people every day and plays a critical role in offices, apartment buildings, hospitals, airports, and public transport systems around the world. With an increasing focus on maintenance, modernization, and digital solutions, Otis benefits from stable cash flows and long-term trends such as urbanization and aging infrastructure. The question remains: Does this steady industrial business deserve a place in a long-term investment portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Otis Worldwide at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Otis Worldwide, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Otis Worldwide Corporation is the world’s leading manufacturer, installer, service provider, and modernizer of elevators, escalators, and moving walkways. Founded in 1853 by Elisha Otis, the company has played a foundational role in the development of vertical transportation and urban infrastructure for more than 170 years. Otis became part of United Technologies in 1976 and was spun off as an independent, publicly listed company in 2020. Otis operates globally, serving customers in more than 200 countries and territories, with a direct physical presence in over 70 countries. The company moves approximately 2,5 billion people every day and maintains around 2,5 million elevator and escalator units worldwide, making it the largest service provider in the industry. The business is organized into two segments: New Equipment and Service. The New Equipment segment designs, manufactures, sells, and installs passenger and freight elevators, escalators, and moving walkways for residential, commercial, and infrastructure projects such as offices, apartment buildings, airports, metros, and rail stations. Customers include real estate developers, contractors, and government agencies. While New Equipment accounts for roughly one-third of revenue, it contributes a much smaller share of operating profit and is increasingly viewed as a feeder for the service business rather than the core value driver. The Service segment is the economic engine of Otis. It provides maintenance, repair, and modernization services for both Otis and third-party equipment. Service represents the majority of operating profit and is built on long-term, recurring contracts with building owners, facility managers, housing associations, and public-sector clients. As equipment ages, Otis supports customers with modernization projects that improve safety, performance, energy efficiency, and building functionality, extending the life of installed systems and deepening customer relationships. Otis’s strategy is explicitly service-led. New installations expand the installed base, which in turn converts into decades-long service relationships. As Otis installs, services, and modernizes elevators and escalators, it increases customer touchpoints and builds loyalty, supporting stable, recurring revenue growth over long time horizons. This model positions Otis as a steady, cash-generative industrial company with structural exposure to urbanization, infrastructure investment, and the ongoing need to maintain critical building systems. Otis’s competitive moat is anchored in its unmatched installed base, global service network, and accumulated operational know-how, all of which reinforce each other and create high barriers to entry. The most important advantage is scale. Otis is the largest elevator and escalator company globally by revenue and maintenance portfolio, with approximately 2,5 million units under service. Millions more Otis elevators remain in operation outside its maintenance portfolio. This installed base is extremely difficult to replicate and serves as the foundation for recurring service revenue. Notably, more than half of Otis’s service portfolio consists of non-Otis equipment, demonstrating that its service capabilities extend beyond its own products and that customers are willing to switch providers based on service quality rather than original manufacturer alone. Brand reputation reinforces this advantage. Otis is synonymous with elevator safety and reliability, a reputation built over more than a century. In a mission-critical system like elevators, where failures can disrupt buildings and create safety risks, customers place significant value on proven performance. This trust contributes to high contract renewal rates, with roughly 90% of service contracts renewed when they come up for renewal. Otis’s global network and local presence form another core pillar of its moat. The company operates more than 1.400 branches and offices worldwide and employs around 72.000 people, including roughly 37.000 service mechanics. This dense, locally embedded service infrastructure enables fast response times, regulatory compliance, and close customer relationships. Few competitors can match Otis’s combination of global reach and local execution, which is particularly important for multinational customers and large infrastructure projects spanning multiple geographies. Service know-how and data further differentiate Otis. As the original elevator company, Otis has accumulated deep technical expertise, standardized maintenance protocols, and extensive training programs. Its 24/7 OTISLINE call centers coordinate service requests and technician dispatch globally, supporting consistent service quality. Increasingly, this know-how is augmented by digital capabilities. Otis ONE, its cloud-based IoT platform, connects more than one million units for real-time monitoring, predictive maintenance, and remote diagnostics, improving uptime while lowering service costs. Over time, this growing data advantage strengthens service quality and operational efficiency. Product breadth also supports competitive positioning. Otis offers elevator platforms across all building types, from low-rise residential to high-rise skyscrapers, as well as escalators and moving walkways for public infrastructure. Platforms such as Gen2, Gen3, Gen360, and SkyRise allow Otis to compete across a wide range of customer needs and project complexities. Finally, Otis benefits from economies of scale. Its size allows it to spread R&D, digital investments, and manufacturing costs across a large revenue base. Global procurement and manufacturing scale lower unit costs, while strong and predictable cash flows support dividends, share buybacks, and selective acquisitions. These advantages are difficult for smaller competitors to match and reinforce Otis’s long-term competitive position.

Management

Judy Marks serves as the CEO of Otis Worldwide, a role she assumed at the company’s spinoff from United Technologies in 2020 after joining Otis in 2017. She has led Otis through its transition into an independent public company and has been instrumental in shaping its strategy as a service led, digitally enabled industrial business. Judy Marks brings extensive experience in global industrial and technology driven organizations, with a career spanning engineering, operations, and executive leadership roles. Prior to joining Otis Worldwide, Judy Marks held senior leadership positions at IBM, Lockheed Martin, and Siemens AG. Across these organizations, she built a reputation for driving large scale transformations, integrating advanced technologies into complex industrial systems, and improving operational performance. Her background as an engineer has strongly influenced her leadership approach, with a focus on system level thinking, execution discipline, and long term value creation. She holds a degree in electrical engineering from Lehigh University. Since becoming CEO, Judy Marks has emphasized that Otis cannot rely solely on its market leadership and history. She has repeatedly highlighted the importance of reinvention, stating that even as the number one player in the industry, Otis must continue to evolve rather than rest on its position. Under her leadership, Otis has accelerated its shift toward a service centric business model, where recurring maintenance and modernization revenues drive the majority of profits and cash flow. A central pillar of her strategy has been digital transformation. Judy Marks has overseen the expansion of Otis ONE, the company’s cloud based IoT platform, which enables real time monitoring, predictive maintenance, and remote diagnostics across a growing portion of the installed base. She has also spoken about the use of artificial intelligence, automation, and robotics to improve productivity, particularly in high volume and repetitive tasks. These initiatives are designed to enhance service reliability, improve technician efficiency, and strengthen customer retention, reinforcing Otis’s long term competitive advantages. Culture plays a defining role in Judy Marks’s leadership philosophy. She has consistently emphasized that business success depends on engaged colleagues and satisfied customers, regardless of a company’s size or scale. Empowerment, respect, and accountability are recurring themes in her messaging, and she has positioned culture as a strategic asset rather than a soft consideration. As the first woman to lead Otis, she has made diversity and inclusion a priority, arguing that diverse teams lead to better decision making, stronger innovation, and improved performance over time. Employee sentiment under her leadership has been strong. According to Comparably, Judy Marks holds an employee rating of 76 out of 100, placing her in the top tier of CEOs at similarly sized companies. This reflects a leadership style that balances high expectations with a focus on engagement and long term development. Beyond Otis, Judy Marks serves on the board of Caterpillar Inc. and AdvanceCT, further underscoring her standing within the global industrial and business community. Given her deep operational experience, focus on digital and service driven growth, and emphasis on culture and execution, I believe Judy Marks is well positioned to lead Otis Worldwide through its next phase as an independent company, while strengthening its competitive moat and long term value creation.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Otis Worldwide Corporation became an independent company in 2020, so we only have six years of ROIC history to work with. That said, the consistently high ROIC since the IPO is not accidental. It reflects how Otis actually makes its money and how little capital it needs to do so. The most important point is that Otis is primarily a service business, not a manufacturing business. While the company still installs new elevators and escalators, the Service segment generates the vast majority of operating profit. Maintaining, repairing, and modernizing existing elevators requires relatively little capital compared with building new equipment. Once an elevator is installed, it can generate service revenue for decades, often with minimal additional investment. This naturally leads to very high ROIC. Otis’s huge installed base reinforces this effect. With around 2,5 million units under maintenance worldwide, the company already has the assets it needs to earn future revenue. Customers rarely switch service providers because elevators are safety-critical systems and downtime is costly. As a result, Otis enjoys high contract renewal rates and predictable cash flows without needing to reinvest large amounts of capital, which pushes ROIC higher. The improvement in ROIC over the past three years also reflects what changed after the spinoff. As a standalone company, Otis has been able to focus more clearly on capital discipline. Management has prioritized growing service revenue, improving productivity, and using digital tools to increase efficiency. New equipment installations are increasingly treated as a way to expand the service portfolio rather than as a profit center on their own. Digital tools such as Otis ONE also help explain the recent strength in ROIC. Predictive maintenance and better technician planning reduce downtime and costs while improving service quality. These improvements increase profits without requiring significant new investment, which mechanically boosts returns on capital. Looking ahead, ROIC at current levels is unlikely to rise indefinitely, as returns above 50% are extremely high for any industrial business. However, the factors behind Otis’s strong ROIC appear durable. The installed base continues to grow, modernization demand remains strong as equipment ages, and the service business remains capital-light. As long as service continues to dominate profits and Otis maintains pricing and cost discipline, ROIC should remain structurally high compared with most industrial peers.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Otis has reported negative equity every year since it became an independent company in 2020. At first glance, this can look worrying, but in Otis’s case it is mainly an accounting outcome rather than a sign of financial weakness. The first reason is how Otis was set up at the spinoff. When Otis was separated from United Technologies, it was given a meaningful amount of debt and long-term obligations relative to its equity. That meant the company started its life as a public company with a very small equity base. From day one, the balance sheet was therefore already stretched from an accounting perspective. The second reason is how Otis runs its business today. Otis generates strong and stable cash flows from its service contracts, but it does not need much capital to operate or grow. Because of this, management has chosen to keep the balance sheet lean instead of building up equity. Over time, this naturally keeps equity negative rather than allowing it to rebuild. Another important point is that book equity is not a very useful measure for a company like Otis. Elevators are already installed, the service business is recurring, and growth does not require large investments in new assets. What matters far more is whether Otis can consistently generate cash and comfortably service its debt. On those measures, the company remains strong. Negative equity is usually a warning sign for businesses that require large ongoing investments or that experience sharp swings in demand. Otis is different. Its revenue is mostly recurring, its customer relationships are long lasting, and its cash flows are stable and predictable. Because of this, the company’s financial health is judged far more on its ability to generate cash and manage debt than on the size of its book equity. Looking ahead, equity is likely to stay negative unless Otis fundamentally changes how it allocates capital. As long as the company continues to run a service-led, capital-light model and maintains a lean balance sheet, there is no strong reason for equity to move into positive territory.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Otis has generated free cash flow that is both high and stable since its IPO in 2020. This mainly reflects how the business is built and how it earns money. The most important reason is that Otis makes most of its profits from servicing elevators rather than selling new ones. Once an elevator is installed, it needs regular maintenance and occasional upgrades for many years. These service contracts bring in steady cash and do not require large ongoing investments. As a result, a large part of Otis’s profits turns directly into free cash flow. Another reason is the predictability of demand. Elevators are essential equipment in buildings and must be maintained regardless of the economic environment. Even when new construction slows, existing elevators still need servicing, and older systems often require modernization. This makes Otis’s cash flows far more stable than those of many other industrial companies. Since becoming independent, Otis has also become more efficient in how it runs the business. The company has improved service margins through better pricing and by helping technicians complete more work per day. In addition, Otis has improved how quickly it collects cash from customers and how smoothly projects are executed. These improvements increase cash generation without requiring large additional spending, which helps keep free cash flow consistently strong. Looking ahead, free cash flow is likely to grow gradually rather than sharply. The service portfolio continues to expand as new installations are converted into maintenance contracts, and modernization demand remains supported by an aging global elevator base. Digital tools such as predictive maintenance improve efficiency and margins, which can lift cash flow over time without meaningfully increasing capital needs. That said, Otis already generates a high level of free cash flow, so future growth is more likely to be steady and incremental. Otis uses its free cash flow in a disciplined and predictable way. Most of it is returned to shareholders, while a smaller portion is used for targeted bolt-on acquisitions that strengthen the service business or expand the company’s presence in key markets. Investment spending remains focused, reflecting the fact that Otis does not need large amounts of capital to operate or grow. The free cash flow yield suggests that while Otis does not look cheap today, it is trading at its most attractive valuation since 2021. We will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. I prefer businesses where total long-term debt can be repaid within three years by dividing debt by annual earnings. Based on this approach, Otis Worldwide currently has 5,06 years of earnings in debt, which is higher than I would like to see. Part of the higher debt comes from the way Otis was set up when it became an independent company in 2020. At the spinoff, Otis started with a relatively large amount of debt. Since then, the company has also used some debt to buy back shares, which has slowed how quickly the debt level comes down. That said, Otis runs a very stable business built around recurring service revenue and predictable cash flows. This makes the debt easier to manage than it would be for a business that is more cyclical or requires heavy ongoing investment. Management has also said that reducing debt is a priority, and as long as free cash flow remains strong, Otis should be able to make gradual progress. While I would still prefer to see debt reduced closer to my three-year threshold, the current debt level does not look like a long-term problem given the strength and stability of the business.

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Risks

Competition is a risk for Otis. The elevator and escalator industry is highly competitive, both globally and locally, and this creates ongoing pressure on pricing, margins, and market share. While Otis is one of the largest players in the world, it operates in an industry with hundreds of competitors in new equipment and several thousand competitors in service. At the global level, Otis competes directly with large multinational peers such as KONE, Schindler Group, and TK Elevator. These companies have similar scale, technology, and service capabilities and often compete head-to-head on large commercial and infrastructure projects. Market share among the leading players is relatively balanced, and competitive dynamics vary by region, with different companies holding stronger positions in different geographies. Competition is even more intense in the service segment, which is Otis’s main profit driver. Independent service providers collectively maintain around half of all elevators worldwide. These smaller operators often focus on local markets and simpler maintenance needs and can offer lower prices due to leaner cost structures. While they typically lack Otis’s global reach, digital tools, and full-service capabilities, they can still win contracts from price-sensitive customers, putting pressure on service pricing and margins. Competitive conditions also vary significantly by geography. Local regulations, safety codes, labor rules, and customer preferences differ from market to market, giving regional players an advantage in certain areas. The Asia-Pacific region is particularly competitive, with additional local manufacturers and service providers beyond the global leaders, making it harder to gain or defend market share. Another source of risk is the contract-based nature of the business. Both new equipment installations and service agreements are typically awarded through competitive bidding. To win contracts, Otis must offer attractive pricing while accurately estimating costs, timelines, and service requirements. Errors in these estimates can lead to lower profitability, cost overruns, or penalties if performance standards are not met. In new equipment, where margins are already thinner, price competition can be especially intense. Finally, competition extends beyond customers to talent. Otis depends on skilled engineers, technicians, and field personnel to deliver high-quality service. The company competes with both industry peers and companies outside the sector for qualified workers, particularly in tight labor markets. Difficulty attracting or retaining talent can increase costs and affect service quality, which in turn impacts competitiveness.

Regulation is a risk for Otis. The company operates in a highly regulated industry and across many countries, which exposes it to a wide range of laws, standards, and compliance requirements that can change over time and vary significantly by region. First, Otis is subject to strict building, elevator safety, and labor regulations in every market where it operates. Elevators and escalators are safety-critical systems, and compliance with local codes, inspection rules, licensing requirements, and worker safety standards is mandatory. Because these rules differ across countries and cities, Otis must constantly adapt its products, installation processes, and service practices. Tighter safety standards or changes in certification requirements can increase costs, delay projects, and reduce flexibility when bidding for new contracts. Second, Otis is exposed to trade, export, and geopolitical regulations because of its global footprint. Tariffs, import restrictions, export controls, and sanctions can increase costs or disrupt supply chains. These risks are particularly relevant in periods of rising geopolitical tension. Changes in trade policy can happen quickly and may limit Otis’s ability to sell products, move technology across borders, or operate efficiently in certain markets. China represents a specific regulatory and geopolitical risk. It is one of Otis’s largest markets, accounting for a significant share of new equipment sales and unit volume. Changes in Chinese regulations, such as local manufacturing requirements, foreign ownership rules, or procurement policies, could limit market access or increase costs. Escalating tensions between the U.S. and China could further complicate operations, supply chains, or customer relationships in the region. Otis is also exposed to legal and compliance risks related to how it conducts business. The company must comply with anti-corruption, anti-collusion, and competition laws, including regulations governing interactions with government entities. Because Otis works with public-sector customers and uses partners and agents in certain markets, violations by employees or third parties could result in fines, penalties, contract terminations, or reputational damage. Ongoing or potential litigation related to antitrust or product liability can also lead to financial costs and management distraction. Finally, the contract-based nature of the business increases regulatory exposure. Many contracts include strict performance, safety, and compliance requirements, particularly for government or infrastructure projects. Failure to meet these obligations could lead to penalties, contract losses, or exclusion from future public tenders.

Macroeconomic factors are a risk for Otis. The company’s performance is influenced by global economic conditions because its products and services are closely tied to construction activity, infrastructure spending, cost inflation, and financial conditions across many regions. Demand for new elevators and escalators is directly linked to construction and infrastructure investment. Higher interest rates, weaker economic growth, or tighter credit conditions can make it more expensive for developers to finance projects, leading to delays or cancellations. Government spending also plays an important role, particularly for large infrastructure projects such as airports, metro systems, and public buildings. If governments reduce infrastructure investment due to budget pressures or shifting priorities, demand for Otis’s new equipment can decline. While the service business provides stability, new equipment demand remains cyclical. Periods of economic slowdown tend to reduce the number of new installations, which can weigh on revenue growth and order intake. A prolonged downturn in construction activity could also slow the expansion of Otis’s installed base, limiting future service growth over time. Macroeconomic conditions also affect costs. Otis relies on raw materials such as steel, copper, and aluminum, whose prices can fluctuate significantly. In addition, the company depends on a large workforce of skilled technicians, making it sensitive to wage inflation and labor shortages. If material, energy, or labor costs rise faster than Otis can adjust pricing or improve productivity, margins may come under pressure. Currency movements represent another source of risk. With a majority of revenue generated outside the United States, Otis is exposed to foreign exchange fluctuations. A stronger U.S. dollar reduces the value of international revenue when translated into dollars and can also increase the cost of imported components. Finally, broader financial conditions can impact both customers and suppliers. Limited access to credit or higher borrowing costs can constrain customers’ ability to finance purchases and may lead to project delays or order cancellations. Similar pressures on suppliers can disrupt supply chains or increase costs.

Reasons to invest

Modernization and maintenance is a reason to invest in Otis. It sits at the center of the company’s long-term growth strategy and represents one of the most durable and attractive opportunities in the elevator industry. Otis has the largest maintenance portfolio in the world, with roughly 2,5 million units under contract. These elevators and escalators must be serviced regularly and refurbished over time, regardless of economic conditions. This creates recurring, predictable revenue and makes maintenance a stable foundation for the business. The portfolio has grown consistently for many years, and management expects continued growth in both the number of units and, importantly, the value generated per unit. Modernization adds a powerful second layer to this model. As of the end of 2025, nearly 9 million units out of the global installed base of 23 million are in the prime age range for modernization. These are elevators that are old enough to require major upgrades to improve safety, reliability, energy efficiency, and passenger experience. This aging of the global installed base creates a long runway for modernization demand that is not dependent on new construction cycles. Otis is already seeing this opportunity materialize. Modernization orders have reached record levels, backlog is at an all-time high since the spinoff, and demand is growing across all regions. Management views this as the early stages of a multiyear modernization cycle, supported by past construction booms and the simple fact that elevators continue to age every year. By the time today’s older units are modernized, many will be approaching the next refurbishment cycle, making it a large opportunity. Importantly, Otis has deliberately built its organization around this opportunity. The company has industrialized modernization by integrating it into its manufacturing footprint, using a common supply chain, and deploying dedicated sales teams and specialized installation crews. It has also introduced phased and partial upgrade packages that allow customers to spread costs over time and limit disruption in residential buildings, offices, and hotels. This has broadened the addressable market beyond full replacements and accelerated demand. From a financial perspective, modernization is becoming increasingly attractive. Margins have already surpassed those of New Equipment and are moving toward more than double that level as scale builds. As volumes increase and execution improves, modernization contributes meaningfully to profit growth while also strengthening customer relationships and improving service retention. Management describes modernization as an important lubricant in the flywheel, driving both standalone profitability and long-term service growth. Maintenance, repair, and modernization reinforce each other. Aging equipment increases repair demand, which is the highest-margin part of service. Modernization projects deepen customer relationships and typically lead to long-term maintenance contracts afterward. Together, these dynamics support accelerating service growth, expanding margins, and rising profit contribution over time.

A China turnaround is a reason to invest in Otis. While China has been a drag on results in recent years, the actions Otis has taken and the direction of the business suggest that China is becoming a stabilizing and potentially supportive factor rather than a structural headwind. China is the largest elevator market in the world, representing roughly 40% of the global installed base. Even though new construction has slowed sharply, this has left behind a massive number of elevators that still need to be maintained, repaired, and eventually modernized. This creates a long-term opportunity that is far less dependent on new building activity and much more focused on recurring service revenue. Otis has deliberately reshaped its China business to reflect this reality. Since the spinoff, the company has executed a multi-year transformation program, including the UpLift operating model and the buyout of the minority shareholder in Otis Electric. These actions simplified the business, improved execution, and aligned incentives more closely with Otis’s global strategy. As a result, Otis has been able to adapt its cost structure to a lower new equipment volume environment while protecting margins. A key change is the shift toward services. Service now accounts for nearly half of Otis’s China revenue, up from the mid-teens at the time of the spinoff. This is a meaningful structural improvement. While the Chinese market is highly competitive and contract durations are short, service revenue is more stable, higher margin, and better aligned with long-term value creation than new equipment sales. Modernization is emerging as a particularly important driver. China has a rapidly aging elevator population, with units over 15 years old already entering prime modernization age. Government-backed modernization programs have accelerated this trend, supporting upgrades in older residential buildings and public infrastructure. Otis has been well positioned to capture this demand, leading to strong growth in modernization orders and revenue in China. These projects carry attractive margins and often strengthen long-term maintenance relationships. Although new equipment backlog in China remains lower than historical levels and will continue to weigh on sales in the near term, there are early signs of stabilization. Order trends improved in the second half of 2025, and because backlog conversion in China is relatively short, any recovery in demand can translate into revenue more quickly than in other regions. Importantly, management is being selective rather than chasing volume. Otis is prioritizing projects and customers that offer better lifetime value, higher service density, and stronger profitability. This may limit headline growth rates, but it improves the quality of the portfolio and supports more sustainable returns over time.

Urbanization is a reason to invest in Otis. The long-term global shift toward city living directly supports sustained demand for elevators, escalators, and the services required to keep them running. Urban populations continue to grow as people move to cities in search of jobs, education, and better living standards. According to global estimates, nearly 70% of the world’s population is expected to live in urban areas by 2050. As cities become more crowded, they cannot expand outward indefinitely. Instead, they grow upward. Taller residential buildings, office towers, hospitals, hotels, transit hubs, and mixed-use developments all depend on reliable vertical transportation. There is no practical substitute for elevators and escalators in dense urban environments, making demand structurally durable. This trend benefits Otis in multiple ways. New urban development creates demand for new elevator and escalator installations, particularly in fast-growing cities across Asia, Africa, and parts of Latin America. Countries such as India are experiencing rapid urbanization, leading to a steady increase in high-rise construction. India has already become one of the largest elevator markets globally, and continued urban growth is expected to support long-term demand. Otis has an established presence in these markets and offers products tailored to different building heights, traffic patterns, and local requirements. Urbanization also strengthens the service side of the business, which is where Otis earns most of its profits. Once elevators are installed in cities, they remain in place for decades and must be maintained regularly to meet safety standards and ensure reliability. As urban infrastructure ages, modernization becomes increasingly important to improve efficiency, safety, and energy use. Growing cities today become the modernization and service opportunities of tomorrow, creating a long runway of recurring revenue. In addition, urbanization is closely tied to public infrastructure investment. Expanding metro systems, airports, train stations, and public buildings all require elevators, escalators, and moving walkways that can handle high traffic volumes. These assets operate for long hours and require frequent servicing and periodic upgrades, further reinforcing demand for Otis’s maintenance and modernization capabilities.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 3,50, which is from the year 2025. I have selected a projected future EPS growth rate of 11%. Finbox expects EPS to grow by 11,1% in the next five years. Additionally, I have selected a projected future P/E ratio of 22, which is double the growth rate. This decision is based on Otis Worldwide's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $54,04. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Otis Worldwide at a price of $27,02 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 1.596, and capital expenditures were 152. I attempted to analyze their annual report in order to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 106 in our calculations. The tax provision was 479. We have 389,7 outstanding shares. Hence, the calculation will be as follows: (1.596 – 106 + 479) / 389,7 x 10 = $50,53 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Otis Worldwide's free cash flow per share at $3,71 and a growth rate of 11%, if you want to recoup your investment in 8 years, the Payback Time price is $48,84.

Conclusion

I believe that Otis Worldwide is an intriguing company with strong management and a durable business model. The company has built a moat through its unmatched installed base, global service network, and deep operational know-how, all of which reinforce each other and create high barriers to entry. Otis has consistently generated a high ROIC since its spinoff, and this appears to be a structural feature of the business rather than a short-term effect. Free cash flow and free cash flow margins have also been stable, and while free cash flow is not expected to grow rapidly, steady incremental growth over time should support continued dividend growth for investors. Competition remains a risk because Otis operates in a crowded global and local market where large multinational peers and thousands of smaller service providers compete on price, contracts, and talent, putting ongoing pressure on margins and market share, particularly in the service segment that drives most of the company’s profits. Regulation is another risk, as Otis operates in a safety-critical, contract-driven industry across many countries, exposing it to changing building, labor, trade, and compliance rules that can raise costs, delay projects, limit market access, and increase legal and geopolitical complexity, especially in China. Macroeconomic factors also pose a risk because demand for new equipment depends on construction activity and infrastructure spending, which can weaken during periods of higher interest rates or slower economic growth, while inflation, labor costs, and currency movements can pressure margins and cash flow. On the positive side, modernization and maintenance are a compelling reason to invest, as Otis earns recurring, high-margin revenue from the world’s largest installed base of elevators, while an aging global fleet creates a long runway for modernization that is largely independent of new construction and supports sustained growth and profitability. A potential turnaround in China further strengthens the investment case, as Otis has shifted its focus away from volatile new equipment sales toward higher-margin service and modernization revenue, improving the quality and resilience of the business in its largest market. Urbanization is another long-term tailwind, as growing and denser cities require more high-rise buildings and public infrastructure, making elevators and escalators essential while expanding the installed base that underpins decades of service and modernization demand. Overall, there are many attractive aspects to Otis, and purchasing shares at the Ten Cap price of $50 could represent a solid long-term investment opportunity.

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