OTIS, KONE, SCHINDLER - ELevate Your Portfolio With These Dividend Growth Stocks!
Summary
Sven provides an analysis of the primary players in the elevator and escalator industry, focusing on Otis, Kone, and Schindler. Sven emphasizes that these businesses are highly defensive because they rely on recurring service revenue from a massive installed base of 2.5 million units rather than just new equipment sales. While the global market is expected to grow by approximately 2.9% annually, Sven notes significant headwinds in China where new sales have plummeted, alongside margin pressure from inflation on multi-year service contracts.
Sven highlights that Otis, despite having a strong free cash flow of $1.5 billion and a steady shareholder yield of 5% through dividends and buybacks, carries significant debt and negative equity following its spin-off. Sven calculates the intrinsic value for Otis at approximately $43, which is significantly lower than its current trading price. Sven suggests that an entry point between $30 and $35 would be much more attractive for a value investor looking for a margin of safety.
Sven compares Otis to its peers, Kone and Schindler, noting that they possess cleaner balance sheets with little to no net debt. Sven points out that Kone offers a slightly better dividend yield and more attractive cash flow metrics, while Schindler maintains stable guidance despite the difficult macro environment. Ultimately, Sven concludes that while these are excellent businesses with predictable cash flows, the current 'exuberant' stock market has pushed valuations too high for him to recommend a buy at this time.
Mentioned Stocks
Reasoning: Sven states that Otis is a great cash flow business but is currently overvalued. He notes the high debt and negative equity from its spin-off. Sven calculated an intrinsic value of $43 based on a 6% growth rate, suggesting the current price lacks a margin of safety. Sven identifies $30-$35 as a very interesting entry point for the stock.
Reasoning: Sven notes that Kone has a better balance sheet than Otis, with positive equity and net debt near zero. While he finds the cash flow yield and dividend yield slightly better than its peers, Sven concludes it is still not a 'value investment with margin of safety' at current price levels.
Reasoning: Sven observes that Schindler's valuation is slightly below its current stock price based on his calculations, but not enough to justify a buy in what he describes as an exuberant market. He likes the predictability and stability of the business but is waiting for a better price.