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Public Storage (PSA - Analyst Report), a leading real estate investment trust (REIT) operating self-storage facilities, reported fiscal 2011 second quarter recurring funds from operations (FFO) of $1.43 per share, which beat the Zacks Consensus Estimate by 5 cents. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook of the stock.
Earnings Report Review
During the reported quarter, Public Storage recorded an increase in total revenues to $434.8 million from $407.6 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $409 million.
Same-store revenues increased 4.0% year-over-year to $371.9 million during the quarter, while net operating income climbed 6.2% to $249.9 million. The increase in same-store revenues was primarily due to a 1.4% increase in average occupancy and a 2.2% rise in realized rent per occupied square foot.
(Read our full coverage on this earnings report: Public Storage Beats Estimates)
Earnings Estimate Revisions - Overview
Fiscal earnings estimates have moved up for Public Storage since the earnings release, meaning that analysts are bullish about the long-term performance of the company. Let’s dig into the earnings estimate details.
Agreement of Estimate Revisions
In the last 30 days, fiscal 2011 earnings estimates were raised by 9 analysts out of 19 covering the stock, while 3 had lowered the same. For fiscal 2012, 13 out of 23 analysts covering the stock revised their estimates upward, while 2 had reduced it. This indicates a positive directional movement for the fiscal year earnings.
Magnitude of Estimate Revisions
Earnings estimates for fiscal 2011 have increased by 4 cents in the last 30 days to $5.84. With a strong performance in second quarter 2011, management further remained upbeat about a double-digit growth in the current fiscal. For fiscal 2012, earnings estimates have surged by 8 cents in the last 30 days to $6.17.
The long-term earnings estimate picture for Public Storage is neutral. Public Storage is the largest owner and operator of storage facilities in the U.S., which has enabled it to achieve large economies of scale and generate high operating margins.
The Public Storage brand is the most recognized and established name in the self-storage industry with a presence in all the major markets across 38 states in the U.S. In addition, the storage facilities of the company have a high visibility and are usually located in heavily populated areas that improve the local awareness of the brand. The company also has one of the strongest balance sheets in the sector with minimal debt maturities and adequate liquidity.
However, Public Storage operates in a highly fragmented market in the U.S., with intense competition from numerous private regional and local operators. Demand for storage facilities has also witnessed a significant drop from its peak level prior to the recession as customers have reduced their discretionary spending. This undermines the long-term growth potential of the company.
We maintain our ‘Neutral’ rating on Public Storage, which currently has a Zacks #3 Rank (short-term ‘Hold’ rating), indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Sovran Self Storage Inc. (SSS - Snapshot Report), one of the competitors of Public Storage.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/