Otis Worldwide
A service flywheel with resilient cash flows and a China-exposed cyclical drag
Otis is the global leader in elevators and escalators with the industry’s largest maintenance portfolio and a service-first strategy that compounds value.
Roughly two thirds of revenue now comes from Service, which continues to expand margins and backlog, while New Equipment is pressured by a prolonged downturn in China and softer North America starts.
Recent results confirm this mix shift: in Q2 2025, Service net sales were $2.3 billion of $3.6 billion total, with a 24.9% segment margin, and modernization orders grew 22% at constant currency.
The company reconfirmed its 2025 EPS outlook and expects $1.4 to $1.5 billion of adjusted free cash flow, supported by UpLift program savings and a China operating model reset.
The moat stems from an unparalleled installed base under maintenance, route density, technician scale, and brand trust, creating switching costs and efficient scale in local markets. Balance sheet liquidity is solid with a new $1.5 billion revolver maturing 2030, long-term debt at a low average cost, and strong cash conversion through cycles.
Governance saw a 2025 say‑on‑pay setback that merits attention, but capital allocation has been disciplined with ongoing buybacks and a fifth straight dividend increase to $0.42 per quarter.
On TTM figures (Q3 2024 to Q2 2025), we estimate $14.2 billion revenue, ~$1.4 billion net income, and ~$1.5 billion FCF, yielding about $3.8 per share FCF on ~396 million diluted shares.
We want to own this business for the long run, but we prefer to accumulate when the FCF yield is at least 6% versus a ~4% 10‑year Treasury, implying an 18x to 20x FCF multiple entry range.
Does Otis Worldwide have a strong competitive moat?
Otis benefits from multiple reinforcing advantages. The core moat is an unmatched service footprint with approximately 2.4 million units under maintenance, which drives route density, parts availability, technician experience, and local efficient scale.
This creates switching costs for building owners tied to safety, uptime, and regulatory compliance. Brand and installed base also support modernization wins. Risks to moat durability include prolonged price aggression from Chinese OEMs in New Equipment, increased openness of controllers reducing lock‑in, and regulatory scrutiny in certain markets.
Still, the Service-led model, modernization backlog growth, and ongoing digital diagnostics (Otis ONE) deepen customer stickiness and margin resilience.
Does Otis Worldwide have pricing power in its industry?
Pricing power is solid in Service where contracts and technician scarcity allow steady mid single‑digit pricing and ~25% segment margins. Modernization orders are growing double digits, often priced at attractive returns due to energy efficiency and code compliance value propositions.
However, New Equipment remains more competitive and price sensitive, especially in China, which caps company‑wide pricing power. Over time, mix shift toward Service and modernization should support modest margin expansion.
How predictable is Otis Worldwide's business?
Revenue and free cash flow are supported by recurring service contracts and a growing modernization backlog, which provides visibility even when construction cycles weaken. In Q2 2025, Otis reconfirmed its EPS outlook and guided to $1.4 to $1.5 billion adjusted free cash flow, consistent with TTM FCF near $1.5 billion.
Cyclicality persists in New Equipment, particularly China, but the overall model resembles a toll‑booth as the installed base ages and requires upgrades. Geographical diversity mitigates country risk.
Is Otis Worldwide financially strong?
As of June 30, 2025, cash and cash equivalents were $688 million with total debt of $7.75 billion, and no borrowings on the revolver.
Long‑term debt carries a low average interest rate of ~2.8% and the company added a $1.5 billion revolving credit facility maturing 2030. Interest expense remains modest relative to operating profit, and free cash flow conversion is strong through cycles.
We note increased commercial paper usage and repayment of $1.3 billion notes in April 2025, but overall liquidity and access to capital are robust.
How effective is Otis Worldwide's capital allocation strategy?
Management continues to prioritize organic investments and productivity (UpLift), while returning capital through a fifth consecutive dividend increase to $0.42 per share and ongoing buybacks ($550 million in H1 2025; new $2.0 billion authorization in January 2025 with ~$1.5 billion remaining at 6/30/25).
M&A has been modest and focused on service density. We view the mix as sensible for an asset‑light, cash‑generative model. Watch items include ensuring buybacks are value‑accretive and maintaining prudent leverage as macro conditions evolve.
Does Otis Worldwide have high-quality management?
CEO Judy Marks has executed the service‑driven strategy since spin, delivering recurring growth, steady margin expansion, and strong cash generation. Execution on modernization and cost programs appears credible.
A notable 2025 shareholder vote opposed executive compensation, indicating potential misalignment on pay; the board will need to address this. Operationally, China exposure and tariff headwinds require careful navigation. Overall stewardship has been good, but we mark governance down slightly due to the say‑on‑pay outcome.
Is Otis Worldwide a quality company?
Otis Worldwide is a good quality company with a quality score of 82/100
- Largest global installed base and service portfolio (~2.4 million units) underpin recurring, high‑margin cash flows and rising modernization demand.
- Service mix >60% of sales with ~25% segment margin provides resilience while New Equipment remains cyclical and China‑sensitive.
- Operational programs (UpLift, China transformation) target ~$240 million run‑rate savings by year‑end 2025, supporting margins and cash flow.
- Healthy liquidity and low borrowing costs: cash $688 million, total debt $7.7 billion as of 6/30/25, new $1.5 billion revolver to 2030.
- Capital returns continue (dividend raised 8%, buybacks H1 2025 ~$550 million), though 2025 shareholder vote opposed executive pay, a governance watch item.
What is the fair value of Otis Worldwide stock?
Is Otis Worldwide a good investment at $90?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.