Public Storage ( PSA - Analyst Report ) , a leading real estate investment trust (REIT) operating self-storage facilities, is scheduled to report its fiscal 2011 fourth quarter earnings on February 23, 2012. The current Zacks Consensus Estimate for the second quarter is $1.59 per share, representing a year-over-year increase of about 19.3%.

Third Quarter Recap

Public Storage reported third quarter 2011 FFO (funds from operations) of $1.29 per share, compared with $1.69 in the year-earlier quarter. 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.

Excluding several non-recurring items, FFO for third quarter 2011 was $1.56 per share compared with $1.35 in the year-ago quarter. Recurring FFO for third quarter 2011 exceeded the Zacks Consensus Estimate by 12 cents.

During the reported quarter, Public Storage recorded an increase in total revenues to $453.0 million from $422.3 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $428 million.

Magnitude of Estimate Revisions

For fourth quarter 2011, earnings estimates have remained steady in the last 7 days at $1.59. Earnings estimates for fiscal 2011 have also remained stagnant for the last 7 days at $5.78 per share. This represents that the analysts are overtly cautious about both the short and long-term outlook of the company.

Our Recommendation

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 #2 Rank (short-term ‘Buy’ rating). We also have a ‘Neutral’ recommendation and a Zacks #2 Rank for Sovran Self Storage Inc. ( SSS - Snapshot Report ) , one of the competitors of Public Storage.