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Momentum

Extra Space Storage Inc. ((EXR - Snapshot Report))

Since we last mentioned EXR as a growth and income stock back in June of 2011, it was trading right around $20.  Back then the company had delivered a strong earnings report noting high occupancy rates and other factors that encouraged them to raise FY2011 guidance. 

Flash forward 8 months and EXR is trading 36% higher and looking more like a momentum stock.  Let’s not forget the fact that Extra Space is still throwing off a 2.05% dividend as a bit of icing on the cake.  The question is whether the strength will continue?

Company Description & Developments
Extra Space Storage Inc. is a real estate investment trust (REIT), headquartered in Salt Lake City, Utah that owns and operates over 800 self-storage properties in major cities across the U.S.

The Company's properties comprise approximately 550,000 units and over 59 million square feet of rentable space, offering customers a wide selection of conveniently located and secure storage solutions across the country, including boat storage, RV storage and business storage. Extra Space is the second largest owner and/or operator of self-storage properties and the largest self-storage management company in the United States.

The boom in storage is being driven by several factors within the housing sector.  The first of which being extremely high apartment rent rates across the US.  Average rents have risen substantially since the prices of homes have been on the decline.  When the economy took a downturn in 2008, the loss of jobs and defaults in mortgages forced US consumers out of their homes and into apartments.  As housing prices continued to slide, more and more Americans were abandoning their mortgage and homes, opting for rental property.  Expensive rentals may force Americans to live in a smaller place and store their goods offsite. 

Being that the jobs market is still shaky and the average American is still unsure about the future of our economy and home values, apartments are the best, flexible alternative. 

Being that most people have had to downsize their living space or are needing to save money on living expenses, the storage unit has become an integral part of many urban households.  We are a culture that likes “stuff” and even those who don’t hoard tons of extras might still need room for that entertainment center that mom gave you that just doesn’t fit anymore.  She’d kill you if you were to sell it. :)

In all seriousness, self storage is growing in need and popularity; at least until the housing boom comes back and we are all able to buy 5000 square ft. homes with 4 car garages.  Until then expect demand to remain.

Financial Profile
Extra Space is a small-cap (2.5 billion) company that is trading at about 58 times trailing earnings (P/E).  This makes it a bit expensive when you compare it to the broad market average, but EXR is a growth company that recently guided earnings higher on October 27, 2011.  Looking forward, Zacks Consensus Estimates are calling for that number to drop closer to 20 with no change in price over the next year.  

Extra Space became a Zacks Rank 1 strong buy on January 25th, but they have been between a Rank 1 and 2 since the 17th of January.

The storage company reported a quarterly sales increase of 8% at their last earnings report.  Annual sales were up 17% compared to Q32010 with total sales of roughly 281 million in FY2010.  Extra is expected to earn $1.18 in FY2011 according to the Zacks Consensus Estimate. 

Earnings Estimates
Even though EXR is a small cap, there are about 13 analysts covering the issue.  One of them raised estimates higher for the current quarter and three moved estimates up for FY2012 over the past month.  EXR will report Q42011 results on February 21st.  

Expectations are for EXR to generate $0.32 in income this quarter.  Of the 13 analysts who cover EXR, the consensus is for the company to grow earnings by 23% in the current year (FY2011) and roughly 15% in FY2012. 

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates flat or higher than they were 90 days ago for the current and next quarters as well as FY2011 and FY2012. 

EXR beat estimates last quarter by 10% and has averaged to beat estimates by over 7% during the past year’s earnings. 

Market Performance & Technicals
Like most of our momentum stocks, Extra’s charts are very strong and have been rallying for some time.  October marked the 52 low for EXR and since then the stock has leapt more than 56%.  Lately the stock has been making new 52 week highs and is just pennies away from it’s current annual high of $27.44

Extra Space has remained above its 50 and 200 day moving averages since it broke above the both of them in late October.  The averages currently stand at $24.65 (50 day) and $21.92 (200 day). 

EXR has been riding along the upper edge of its Bollinger Band for several weeks of trading.  This pattern typically leads to a mean reversion which would send shares lower over the short term.   I’d look for a pullback to the $25 level before jumping into EXR based on this formation.   EXR has exceeded the S&P 500’s performance by over 36% in the past year and over 9% in the past 3 months alone. 

 Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

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