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Why You Should Add Otis (OTIS) Stock to Your Portfolio

Solid 2021 view, focus on innovation and business combinations to aid Otis Worldwide (OTIS).

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This story originally appeared on Zacks

Otis Worldwide Corporation OTIS has been making the most of solid segmental performance, focus on innovation and strategic moves. Shares of this world's leading elevator and escalator manufacturing, installation and service company have rallied 36.2% so far this year, outperforming the Zacks Building Products – Miscellaneous industry’s 16.1% rally.



Despite concerns arising from higher input, R&D and expansion costs along with stiff competition, earnings estimates for 2021 have increased 3.8% over the past 60 days, depicting analysts’ optimism over its prospects.

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The price performance was also backed by the company’s robust earnings surprise history, having surpassed the Zacks Consensus Estimate in all the trailing six quarters. This bullish trend justifies the Zacks Rank #2 (Buy) stock’s addition to investors’ portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve deeper into the major growth drivers.

Stellar Performance: The company exhibited solid results for the first six months of 2021 supported by strong organic growth. First-half net sales grew 18.6% driven by a 12.9% increase in organic sales and 5.5% benefit from foreign exchange. Sales for both the segments — New Equipment and Service — gained 31.8% and 9.7%, respectively, for the first half of the year. Adjusted operating profit increased $198 million year over year. Adjusted operating margin expanded 40 basis points for the period. Adjusted EPS increased 29.1% from the year-ago period to $1.51.



Upbeat View: Backed by strong first and second-quarter results, the company lifted its view for 2021. It expects net sales growth within 10.5-11%, organic sales within 7.5-8%, adjusted operating profit to be up $170-$190 million at constant currency and adjusted earnings in the $2.89-$2.93 range, indicating 15-16% year-over-year growth.



The company has solid prospects, as is evident from the Zacks Consensus Estimate for 2021 earnings of $2.97 per share, which indicates 17.9% year-over-year growth. Otis also has a favorable Growth Score of B.



Innovative Moves: Otis’ primary focus on innovation is core to its strategy. In 2020, the company invested $152 million or 1.2% of net sales in research and development ("R&D"). This continued in the first half of 2021 as well. In first-half 2021, it invested $75 million in R&D, including investments in Internet of Things or IoT technologies. In addition to launching Gen3 and Gen360, its newest, innovative platforms with built-in IoT connectivity, Otis grew New Equipment orders by 24% and the industry-leading maintenance portfolio by 3% during the first half.



As of Dec 31, 2020, the company owned approximately 3,000 globally issued patents and nearly 3,100 patent applications were pending globally, of which 2,500 applications were filed in the last three years.

Other Key Picks

Other top-ranked stocks in the same industry include Armstrong World Industries, Inc. AWI, Owens Corning Inc. OC and Simpson Manufacturing Company, Inc. SSD, each carrying a Zacks Rank #2.



Armstrong World, Owens Corning and Simpson Manufacturing’s earnings for 2021 are expected to rise16.3%, 68.1% and 28.6%, respectively.



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