2022 Might Be Schindler's Kitchen Sink Year With Transition in Top Management

Schindler's stock sold off by around 5% at the time of writing with the new management warning of a 20% drop in first-half 2022 adjusted operating profit year over year. Shares are trading modestly below our fair value estimate, which we maintain along with our wide moat rating. Schindler has clearly lagged on execution relative to peers Kone and Otis, long trailing both on margins but 2022 guidance implies an even lower margin, which we estimate down around 100 basis points below the 11% reported in 2021. However, we think new management may be wiping the slate clean, or "kitchen-sinking," with the margin pressure warning ahead of its strategy announcement sometime in the summer. We see the margin weakness guided for the first half as driven by temporary factors and self-inflicted wounds, with raw material cost inflation and the company's own spend to connect its elevator base.