KNYJY - Otis: Strong Q3 Results China Slowing But Likely Just Temporarily

• Otis has continued to do well operationally in Q3, with sales growing 8.1% and EBIT growing 10.3% organically; currency was a tailwind.
• 2021 outlook has been raised, with sales growth now expected to be 8.5-9.0% and EPS growth expected to be 17%. The implied P/E is 28.8x.
• Buying out minorities in Zardoya Otis, a subsidiary in Southern Europe, is expected to add a mid-single-digit percentage to EPS in 2023.
• The Chinese market is expected to be flat in 2022 but recover thereafter; a prolonged downturn will hurt, but China is less than 20% of EBIT.
• With shares at $85.38, we expect a total return of 58% (16.5% annualized) by 2024 year-end. Buy.

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