DCF Studio

    OTIS · NYQ · Industrials

    Otis Worldwide Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 51.59

    Market price

    USD 68.52

    Implied upside

    -24.7%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages just 0.94% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 51.59-24.7%
    Exit multiple
    USD 62.96-8.1%
    Market price
    USD 68.52

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 14.7bnUSD 15.0bnUSD 15.2bnUSD 15.5bnUSD 15.8bn+1.8%
    EBITUSD 2.2bnUSD 2.3bnUSD 2.3bnUSD 2.4bnUSD 2.4bn+1.8%
    NOPATUSD 1.8bnUSD 1.8bnUSD 1.8bnUSD 1.9bnUSD 1.9bn+1.8%
    Add depreciation & amortisationUSD 192.3mUSD 195.7mUSD 199.2mUSD 202.7mUSD 206.4m+1.8%
    Less capital expenditureUSD -146.9mUSD -149.5mUSD -152.2mUSD -154.9mUSD -157.7m+1.8%
    Less increase in working capitalUSD -15.2mUSD -15.5mUSD -15.8mUSD -16.1mUSD -16.4m+1.8%
    Free cashflow to firmUSD 1.8bnUSD 1.8bnUSD 1.9bnUSD 1.9bnUSD 1.9bn+1.8%
    Discount factor0.95810.87960.80750.74130.6806-
    Present valueUSD 1.7bnUSD 1.6bnUSD 1.5bnUSD 1.4bnUSD 1.3bn-6.6%
    Present Value Of The ForecastUSD 7.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.916Reported 0.875, pulled toward 1.0 (Blume)
    Cost of equity10.04%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 26.1bn75.4% of capital
    Total debtUSD 8.5bn24.6% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.93%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 51.59

    73% of EV

    Forecast FCFF, final year
    USD 1.9bn
    Capex at depreciation, working capital in reinvestment
    USD 1.9bn
    Less reinvestment at g/ROIC (4.2% of NOPAT)
    USD -81.2m
    Capitalised
    USD 1.9bn
    ROIC (reported)
    60.0%
    Terminal value, undiscounted
    USD 29.8bn
    Terminal value, discounted
    USD 20.3bn
    Enterprise value
    USD 27.8bn
    Less net debt
    USD 7.4bn
    Equity value
    USD 20.4bn

    Exit at 14.0x EBITDA

    Value per shareUSD 62.96

    77% of EV

    Terminal value, undiscounted
    USD 36.4bn
    Terminal value, discounted
    USD 24.8bn
    Enterprise value
    USD 32.3bn
    Less net debt
    USD 7.4bn
    Equity value
    USD 24.9bn

    Spread between methods: 20%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.93%67.6874.1682.1092.06104.90
    7.93%54.5958.9264.0470.2077.74
    8.93%45.0248.0751.5955.7060.57
    9.93%37.7139.9542.4945.3948.73
    10.93%31.9633.6535.5437.6740.08

    Outlined: this model. Green text: above today's price of 68.52. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year1.8%7.0%+5.2pp
    EBIT margin15.2%18.9%+3.7pp
    Discount rate8.9%7.6%-1.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.