Otis Worldwide CorporationOTISNYSE

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DCF Valuation

DCF Valuation Summary

Sell

Fair Value: $83.03 per share(market-calibrated)

-10.1%

Upside to Fair Value

Current

$92.39

Pure Model

$81.92

Fair Value

$83.03

Bull Case

$102.44

Bear Case

$64.29

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

3.47%

Calibrated Growth

2.43%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $81.92.

What's Driving This Ratingfor OTIS

✓

CapEx already efficient

CapEx at 0.95% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

→

Moderate revenue growth

Analyst consensus projects 5.24% revenue growth, fading to 2.25% by Year 10. Revenue reaches $20.3B (vs $14.4B today).

🎯

Market pricing in higher long-term growth

To justify $92.39, the market implies 3.47% perpetual growth — 122bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 70.75% indicates efficient cash generation. FCF reaches $2.3B by Year 10 (11.52% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.99

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.94%

Cost of Debt

Pre-tax Cost of Debt1.50%

Tax Rate24.77%

After-tax Cost of Debt1.13%

Equity Weight (E/V)80.61%

Debt Weight (D/V)19.39%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (80.61% × 8.94%) + (19.39% × 1.13%)

= 7.42%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$15.2B	$16.7B	$18.2B	$19.0B	$20.3B
EBIT	$2.3B	$2.5B	$2.7B	$2.8B	$3.0B
Tax	$563M	$619M	$675M	$705M	$754M
NOPAT	$1.7B	$1.9B	$2.0B	$2.1B	$2.3B
+ Depreciation	$198M	$218M	$238M	$249M	$266M
- Capex	$145M	$159M	$173M	$181M	$194M
- Δ NWC	$35M	$35M	$18M	$19M	$20M
Free Cash Flow	$1.7B	$1.9B	$2.1B	$2.2B	$2.3B
Discount Factor	0.931	0.807	0.699	0.606	0.489
Present Value	$1.6B	$1.5B	$1.5B	$1.3B	$1.1B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.3B

Terminal Growth Rate2.25%

WACC7.42%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$46.3B

PV of Terminal Value$22.6B

Exit Multiple Method

Year 10 EBITDA$3.3B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$59.6B

PV of Terminal Value$29.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$14.0B

PV of Terminal Value$22.6B

Enterprise Value$36.7B

(-) Net Debt$7.7B

Equity Value$29.0B

Shares Outstanding394M

Price per Share$73.67

Exit Multiple Method

PV of Projected FCFs$14.0B

PV of Terminal Value$29.1B

Enterprise Value$43.2B

(-) Net Debt$7.7B

Equity Value$35.5B

Shares Outstanding394M

Price per Share$90.17

Pure Model Fair Value

$81.92

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
5.42%	$107.10	$113.13	$121.07	$131.97	$147.90
6.42%	$89.84	$93.35	$97.71	$103.25	$110.54
7.42%	$77.03	$79.26	$81.92	$85.15	$89.15
8.42%	$66.95	$68.46	$70.20	$72.25	$74.70
9.42%	$58.72	$59.78	$60.98	$62.36	$63.97

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$64.29

-30.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.23

Base Case

$81.92

-11.3% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.99

Bull Case

$102.44

10.9% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.84

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth5.24%

Year 3 Revenue Growth4.76%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin14.97%

Tax Rate24.77%

Historical Capex / Rev0.95%

NWC / Revenue4.57%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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