Why Otis Worldwide Stock Keeps Going Up
Since spinning off from United Technologies a year ago, Otis Worldwide (NYSE:OTIS) has been one of the hottest industrial stocks.
Since spinning off from United Technologies a year ago, Otis Worldwide (NYSE:OTIS) has been one of the hottest industrial stocks. Shares of the iconic elevator company are up over 70% since they began flying solo.
Otis Worldwide kicked off it's one year anniversary as a stand-alone company in style this week announcing strong first quarter results. In late-morning trading on April 26th, Otis was up another 6% to a new high. And based on the momentum in the business, investors are likely to keep pressing the up button.
How Did Otis Worldwide Perform in Q1 2021?
In the first quarter of 2021, Otis Worldwide recorded a 15% jump in sales to $3.4 billion as both its New Equipment and Service divisions notched solid top line growth. Both segments also achieved margin expansion as the overall operating margin swelled an impressive 3.8%.
First-quarter adjusted earnings per share (EPS) were $0.72 which easily topped the consensus expectation of $0.63. The top line result also beat the Street's revenue forecast of $3.2 billion, so it was a convincing double beat.
Aside from the headline numbers, the results were highlighted by 18% growth in New Equipment orders. This was well spread out among the company's global regions with noteworthy strength in China. The order trend along with an 8% increase in the company's order backlog bode well for future quarters.
The strong first-quarter performance and ongoing recovery in Otis's end markets prompted management to boost its 2021 outlook. It now sees full-year organic sales growth of 4% to 6% and revenue of $13.6 billion to $13.9 billion. Adjusted EPS is now expected to be $2.78 to $2.84.
Even the lower range of the 2021 EPS forecast is above the $2.74 consensus, so we are likely to see some upward earnings revisions and possibly rating upgrades from sell-side analysts. Speaking of upgrades, in addition to upgrading its sales and profit outlooks, Otis hiked its dividend by 20% and raised its 2021 stock buyback target to $500 million.
What do the Technicals Show for Otis Worldwide?
Classic technical patterns don't always play out as prophesized but in the case of Otis Worldwide one chart event certainly has. Back on November 11th, the stock had an upside breakout after it dipped below $60 closing the day at $66.12. The bullish intermediate term pattern pointed to a possible run to the $72.75 to $74.25 range. Fast forward to today and Otis Worldwide has crossed above the $75 mark, easily reaching its target.
Although hindsight is certainly 20-20 on this one, traders that put a lot of stock in technical analysis may still have opportunity for gains. For starters, Otis Worldwide has recently crossed over its 4,9,18 and 21-week moving averages all of which are bullish moves that point to longer-term upside.
The moving average convergence divergence (MACD) indicator also remains bullish. The widely used oscillator turned positive on the weekly chart earlier this month after the MACD crossed the signal line. This suggested that prices fell too far too fast and that an upward correction is underway.
A correction and then some has indeed been underway. Following the April 26th earnings report, Otis Worldwide gapped higher putting it well outside the upper Bollinger band range and giving the stock a near-80 relative strength indicator (RSI). Both suggest that a downward correction is in order at some point, but as the broader trend appears to be convincingly bullish, any low volume weakness in Otis could be a good chance to step into the elevator.
Is it too Late to Hop on Otis Worldwide Stock?
In Otis Worldwide investors are getting a company that is not only benefitting from the global economic recovery but strong execution of a growth strategy. They are also getting an attractive business model that generates growth from the sale of new elevator installations along with the repeating service revenue that follows.
The Service division is the low growth part of the business but makes a steady revenue contribution that provides some peace of mind to investors. In 2021 organic Service sales are expected to be up 2% to 4% while New Equipment sales are on pace for roughly 8% growth.
So, these aren't big growth numbers like we see with many high-flying technology companies. They are, however, reliable growth numbers that the market has come to expect from the 168-year elevator legend.
For this reason, Otis Worldwide stock belongs in a long-term growth portfolio regardless of its post-spinoff run. A year from now it's hard not to see Otis getting even stronger and its share price ascending to new levels.
Featured Article: Google Finance Portfolio