Otis Worldwide Corp (OTIS) stock intrinsic value fair value estimate & owner earnings analysis

Otis is a global elevator and escalator company. It earns money two ways: it sells and installs new equipment (about $5.0 billion of 2025 sales), and it services equipment already in buildings (about $9.4 billion of 2025 sales, roughly two-thirds of the total). The service side maintains a portfolio of about 2.5 million units, including elevators made by competitors, under recurring maintenance contracts, plus repairs and modernization. Total remaining contracted obligations were about $19.1 billion at the end of 2025, and about 75% of that is expected to be recognized as sales over the following 24 months. Service is the stable engine: service sales grew 6% in both 2024 and 2025, and service operating profit rose $171 million in 2024 and $189 million in 2025, on pricing and volume. New equipment is the weak side: organic sales fell 6% in 2024 and 7% in 2025, driven by a decline of more than 20% in China in 2024 and again in 2025 and by tariff and mix pressure, and new-equipment operating profit fell $52 million and then $89 million. Earnings power. We measure what the business earns after the cash it must spend to stay in business, counting stock compensation as a real cost and setting aside temporary swings in receivables, payables and similar items. On that basis Otis earned about $3.2 to $3.5 per share in 2021 through 2023 and $3.31 in 2025 (roughly $1.3 billion). 2024 shows $4.10 but is not used: a favorable German tax ruling that year produced roughly $185 million of tax benefit and $200 million of interest income, partly offset by a $194 million payment owed to its former parent, none of it cash in 2024; the cash refunds arrived in 2025. We anchor on $3.40 per share (about $1.34 billion in total), the median of 2021, 2022, 2023 and 2025. 2020 is excluded as a pandemic year and the first year as a standalone company. Per-share results have also been helped by share count falling from about 435 million to 395 million; we do not count future buybacks as value. Reported per-share earnings fell about 19% in 2025 against 2024, but that comparison is distorted by the German items; against 2023 the 2025 figure is about 6% lower. Our base case assumes about 3.5% growth in year one, above that trailing figure. The reason is in the filings: in 2025 service operating profit rose $189 million while new equipment operating profit fell $89 million, so the two segments together still added about $100 million of profit, and the 2025 per-share decline reflects the German items and payments rather than a fall in operating profit. What each case assumes. Base case ($59 per share): earnings start at the $3.40 level, grow about 3.5% a year for five years and about 2.5% a year for the next five, reaching roughly $1.8 billion, then hold flat for another 20 years. Growth is credited only from the service base, which has grown about 6% a year with rising maintenance pricing and sits on 2.5 million units under contract; new equipment is assumed to contribute nothing net, and margin gains and share gains are left out. The flat tail rests on the installed portfolio of 2.5 million units under maintenance, and we give no credit beyond 30 years. Bear case ($32 per share): the new-equipment slide continues, with further tariff and China pressure, wage inflation eats into service margins, and earnings start near $1.25 billion (below the 2025 level), stay flat for ten years, and then erode steadily to zero over the following 15 years as contracts are lost to competitors. The bear case also reflects debt of about $8.0 billion (about $6.9 billion net of cash), which leaves less room to absorb a weak stretch. It does not assume a sudden collapse of the service base, since nothing in the filings points to one. Bull case ($74 per share): service keeps compounding at the 6% pace it has shown in 2024 and 2025, lifting total earnings growth to 5.5% a year for five years and 4% for the next five, with new equipment stabilizing rather than recovering, followed by a flat 30-year tail. What we left out and why: a recovery in China or global construction, margin expansion beyond the current level, acquisitions and share buybacks. None is secured by a contract or a demonstrated record, so they add nothing to any case. We do not subtract debt separately, since interest is already deducted in the cash earnings we use; leverage is reflected in the lower bear case. What could make this wrong: a permanent loss of service contracts to competitors in Asia Pacific, a steeper new-equipment decline that also shrinks the flow of new maintenance units, or further payments to the company's former parent under the tax matters agreement, of which $56 million was still owed at year-end 2025. The 2024 and 2025 working-capital swings are attributed to the German tax litigation as the company itself describes them in its annual report. Margin-of-safety price: about $38, roughly 36% below the base value and about 19% above the bear case. This reflects a stable, contract-based service business, tempered by leverage, exposure to construction cycles and the China new-equipment decline.