By Paul R. La Monica

Stocks, much like an elevator, are constantly rising and falling. But for elevator and escalator maker Otis Worldwide, it has been more of a gradual descent lately, with shares down nearly 5% this year. That slightly uncomfortable drop could soon end. Investors should prepare to hit the up button.

Otis, which was spun off from United Technologies in 2020 along with heating, ventilation, and air-conditioning company Carrier Global, is poised to benefit from increased demand globally, thanks to a building boom in China, South Korea, and India. The company also will continue to generate steady revenue from its services business, maintaining and upgrading aging elevators in high-rise office and apartment buildings.

"Elevators are getting older everywhere. They need tech and aesthetic refreshes. It's all about rise and speed," Judy Marks, chair, CEO and president of Otis, told Barron's.

That's especially the case in China and other emerging markets. Argus Research analyst Kristina Ruggeri, who has a Buy rating on the stock, argues that growth from the higher-margin services segment should give Otis a further boost. It also helps that Otis is less likely to be affected by any trade tensions between the U.S. and China. "Aftermarket services are exempt from tariffs and provide an opportunity for Otis to accelerate growth, especially in China, where aging equipment should lead to high demand," she wrote in a report.

Marks is also confident that Otis will continue to post solid growth from new orders, particularly in its home market. She noted that the Dodge Momentum Index, a key indicator of construction activity, has been increasing for the past few months. Marks pointed out that there's strong growth in areas like Nashville, Houston, and Dallas, which have helped lead to four straight quarters of new-order growth in the low-t0-mid teens in the U.S. and Canada.

And this could be just the beginning of a construction comeback in America. Marks said that many customers have been waiting for the Federal Reserve to start lowering interest rates before committing to buying new elevators. A cut is now widely expected in September. "There is pent-up demand for when we get the next rate cut," she said.

That isn't yet priced into the shares. The stock is trading at 22 times earnings estimates for this year, a discount to its five-year average forward price/earnings ratio of 25. That seems like a reasonable valuation, considering that analysts are forecasting average annual earnings increases of more than 10% over the next few years. Wall Street's consensus price target on Otis is just shy of $100 a share, 12% above its current price of $89.

RBC Capital Markets analyst Nick Housden, who has an Outperform rating on the stock, added in a report that Otis trades at an undeserved discount to European rivals Kone and Schindler Holding. He thinks a premium is justified, given that Otis has "the highest profit exposure to maintenance" and is the "highest-quality company" in its sector.

Quality usually rises to the top. The stock is trading at a ground-floor price and poised to edge closer to the penthouse.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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August 15, 2025 21:31 ET (01:31 GMT)

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