Otis (OTIS)

Elevator manufacturer Otis (NYSE:OTIS) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 4% year on year to $3.69 billion. The company expects the full year’s revenue to be around $14.55 billion, close to analysts’ estimates. Its non-GAAP profit of $1.05 per share was 4.7% above analysts’ consensus estimates.

Company Overview

Credited with inventing the first hydraulic passenger elevator, Otis Worldwide (NYSE:OTIS) is an elevator and escalator manufacturing, installation and service company.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include KONE (HEL:KNEBV), Schindler (SWX:SCHN), and Thyssenkrupp Elevator (FWB:TKA).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Otis’s sales grew at a sluggish 2.6% compounded annual growth rate over the last five years. This was below our standards and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Otis’s recent performance shows its demand has slowed as its annualized revenue growth of 1% over the last two years was below its five-year trend.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Otis’s organic revenue averaged 1.2% year-on-year growth. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Otis reported modest year-on-year revenue growth of 4% but beat Wall Street’s estimates by 1.2%.

Looking ahead, sell-side analysts expect revenue to grow 4.1% over the next 12 months. While this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

Otis’s gross margin is slightly below the average industrials company, giving it less room to invest in areas such as research and development. As you can see below, it averaged a 29.3% gross margin over the last five years. Said differently, Otis had to pay a chunky $70.72 to its suppliers for every $100 in revenue.

Otis produced a 30.7% gross profit margin in Q3, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Otis’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 14.7% over the last five years. This profitability was top-notch for an industrials business, showing it’s an well-run company with an efficient cost structure. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Otis’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Otis generated an operating margin profit margin of 15.9%, up 5.6 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Otis’s EPS grew at a remarkable 13.1% compounded annual growth rate over the last five years, higher than its 2.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Otis’s earnings to better understand the drivers of its performance. A five-year view shows that Otis has repurchased its stock, shrinking its share count by 9.7%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Otis, its two-year annual EPS growth of 7.5% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Otis reported adjusted EPS of $1.05, up from $0.96 in the same quarter last year. This print beat analysts’ estimates by 4.7%. Over the next 12 months, Wall Street expects Otis’s full-year EPS of $3.95 to grow 7.9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Otis has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 9.8% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Otis’s margin dropped by 2.1 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Otis’s free cash flow clocked in at $337 million in Q3, equivalent to a 9.1% margin. The company’s cash profitability regressed as it was 1.1 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

Otis reported $840 million of cash and $8.49 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.54 billion of EBITDA over the last 12 months, we view Otis’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $58 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Otis narrowly top analysts’ revenue and EPS expectations this quarter. We were also happy its organic revenue narrowly outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 3.1% to $94.15 immediately after reporting.

Updated: December 4, 2025 at 10:20 PM EST

Before deciding whether to buy Otis or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Otis’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was weak over the last five years. And while its strong operating margins show it’s a well-run business, the downside is its organic revenue growth has disappointed. On top of that, its cash profitability fell over the last five years.

Otis’s P/E ratio based on the next 12 months is 20.2x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $103.25 on the company (compared to the current share price of $86.89).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.