Schindler's Execution Struggles Amplified by Challenging Macro Issues; Lowering Fair Value Estimate

Schindler posted a poor second-quarter performance and lowered 2022 revenue guidance, leading us to take a 7% haircut to our fair value estimate to CHF 210 from CHF 225. We lower our 2022 operating income forecast by 22%, factoring in a 1% revenue decline (previously +2.7%) and a 190-basis-point haircut to our EBIT margin to 8.1%. However, we do not see the 2022 revenue shortfall as demand destruction and expect to see a rebound in growth once the Chinese market and supply issues normalize, likely later this year. For 2023, we model in above cycle 6.5% revenue growth. We also expect the business to recover most of the 2022 margin contraction over time. Looking to our 2026 forecast, our operating income is only 7% lower than our previous forecast. We end our explicit forecast period with a 12% operating income margin in 2026, just 50 basis points lower than our previous forecast. We maintain our wide moat rating.