$OTIS DCF valuation model

Nobody gets excited about elevator companies. Yet perhaps every second person uses OTIS equipment or services every single day. That kind of boring can become very interesting at the right price.

Key assumptions:

• Explicit average 5Y/5Y growth @ 5%/3.8%

• Long-term growth in perpetuity @ 2.6%

• Initial EBITDA Margin 16.7% -> 18.6%

• WACC @ 7.5%

• Adj. EBITDA exit multiple of 13.4

• Tax rate 25% - in line with historical average

• The input that drives reinvestment is the most recent Sales to Capital ratio = 3.17

Growth profile (for context)

OTIS has a moderate, service-led growth profile rather than a high-growth industrial story. The core driver is its large installed base of roughly 2.5 million units under service, which generates recurring maintenance revenue and creates a natural pipeline for higher-value repair and modernization work. In Q2 2026, Service organic revenue grew 9%, including 24% growth in modernization, while New Equipment organic sales declined 1%, still pressured by weakness in China. Management currently expects low to mid-single-digit organic growth overall in 2026, with Service growing mid-to-high single digits and New Equipment roughly flat to slightly down. Over the longer term, I incorporate approximately a 4-6% organic revenue growth, increasingly driven by the higher-quality Service and modernization businesses, with urbanization, an aging global elevator installed base, pricing and digitalization providing structural support rather than requiring strong new-construction growth.

Verdict

Valuation suggests that OTIS is trading at 20% discount to fair value. If that gap closes over the next three years, it could translate into around 8% annual alpha.