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Otis: When Manufacturing Couples With Recurring Revenue

Aug. 02, 2023 11:25 PM ETOtis Worldwide Corporation (OTIS)14 Comments
Luca Socci profile picture
Luca Socci


  • The elevator and escalator manufacturing industry is highly concentrated and sees only a few big players.
  • Otis is the largest among them and, since its recent spin-off, it has been able to deliver improving results.
  • Although orders are in decline, the service segment needs to be considered carefully as it reaches numbers worthy to look at.

Testo di scrittura di word Nuovo flusso di entrate. Concetto aziendale per un ulteriore approccio migliorato alla fonte di reddito

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Mr. Market is odd. Last year, the economy was booming and the market tanked due to many reasons (the most important of which, as far as I can see, was rising interest rates). This year, with the economy cooling and order books

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Luca Socci profile picture
I focus on long term growth and dividend growth investing. I follow both the US and the European stock markets, looking for undervalued stock and/or for high quality dividend growing companies that provide me with cash to reinvest. I invest only in stock of companies that run a business I understand through direct experience.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of OTIS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (14)

Is negative shareholders' equity a concern in anyway for you?
Luca Socci profile picture
@MATTINTERWEB thanks for your question. I am actually studying the thing because it all starts with the IPO and negative retained earnings. Give me a little while to cross check the balance sheet with its competitors and understand better how the capital structure was built for the IPO and I will give you a deeper dive.
@Luca Socci thank you
Luca Socci profile picture
@MATTINTERWEB I have looked at the issue more thoroughly. The negative equity comes from three things: when Otis spun off from United Technologies, it had to pay around 6 billion to Otis, creating part of that negative equity which is carried on the balance sheet as negative retained earnings. Then the company started reducing this through its retained earnings. However, it also purchased treasury stock and it completed an acquisition in Spain which increased the negative equity. Overall, it is at the consolidated level. Therefore, it is not a real danger, but rather an accounting practice which in some countries would not be allowed. But overall, there is no real threat to the health of the organic business and I actually believe we will see Otis reach positive equity in a few years. Thanks for asking and let me know what you think.
Steffen Jørgensen profile picture
Otis has been around for 170 years and are still growing earnings and cash flows nicely. Why would you expect that from 2028 they would only be able to grow fcf by 2% in perpetuity? The market is growing 5% a year and their service biz is growing considerabmy above this at increasing incremental margins due to connected units
@Steffen Jørgensen is negative shareholders' equity a concern in anyway for you? Everything else looks very solid.
Steffen Jørgensen profile picture
@MATTINTERWEB Not at all. In general, please don't see neg equity as a concern in any company with a viable business model. Its just their choice of capital structure and allocation. Some of the worlds strongest businesses has negative equity. Almost no real value of any company is truly reflected in any balance sheet today. It was back 100 years ago when all assets were mostly material assets. Not today. Buybacks etc can turn equity negative. So no. It's not a concern. Only human extinction is a concern on Otis' service biz which is 85% of EBIT, hehe.
Steffen Jørgensen profile picture
And btw very disappointed in this author, not answering any questions. Useless analysis.
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