Earnings Scorecard: Public Storage

Public Storage (PSA - Analyst Report), a leading real estate investment trust (REIT) operating self-storage facilities, reported fiscal 2011 fourth quarter recurring funds from operations (FFO) of $1.66 per share, which beat the Zacks Consensus Estimate by $0.07. Funds 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

For full year 2011, Public Storage reported FFO of $5.67 per share, compared with $4.72 in the previous year. Recurring FFO for fiscal 2011 was $5.93 per share compared with $5.22 in 2010. Fiscal 2011 recurring FFO surpassed the Zacks Consensus Estimate by 15 cents.

During the reported quarter, Public Storage recorded a healthy increase in total revenues to $444.7 million from $417.8 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $422 million. For full year 2011, the company reported total revenues of approximately $1.75 billion compared to $1.64 billion in the previous year.

(Read our full coverage on this earnings report: PSA Zooms Ahead of 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 7 days, fiscal 2012 earnings estimates were raised by 6 analysts out of 20 covering the stock, while only 1 had lowered the same. For fiscal 2013, 4 out of 17 analysts covering the stock revised their estimates upward, while none had reduced it. This indicates a positive directional movement for the fiscal year earnings.

Magnitude of Estimate Revisions

Earnings estimates for fiscal 2012 have increased by 4 cents in the last 7 days to $6.43. With superior quarterly and fiscal results that witnessed a healthy increase in both revenues and earnings, the company increased its quarterly dividend for first quarter 2012 by 16% to $1.10 per share. Management further remained upbeat about maintaining the positive growth momentum in fiscal 2012 as well. For fiscal 2013, earnings estimates have surged by 3 cents in the last 7 days to $6.84.

Moving Forward

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’ recommendation on Public Storage, which currently has a Zacks #2 Rank that translates in to a 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.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks 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/