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Can Public Storage (PSA) Pull Off a Surprise in Q4 Earnings?

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Public Storage (PSA - Free Report) is slated to release fourth-quarter and full-year 2020 results on Feb 24, after the bell. Both its quarterly revenues and funds from operations (FFO) per share are likely to display year-over-year increases.

In the last reported quarter, this self-storage real estate investment trust (REIT) reported a surprise of 1.15% in terms of FFO per share. Results reflected an increase in occupancy during the reported quarter. The company also benefited from its expansion efforts through acquisitions, development and extensions.

Over the trailing four quarters, the company beat estimates on one occasion, met in another and missed in the other two, the average negative surprise being 0.48%. This is depicted in the graph below:

Public Storage Price and EPS Surprise

Public Storage Price and EPS Surprise

Public Storage price-eps-surprise | Public Storage Quote

Let’s see how things have shaped up prior to this announcement.

Key Factors

In the fourth quarter, Public Storage is likely to have benefited from its solid presence in key cities and high brand value. In addition, the company has been capitalizing on growth opportunities. Last December, management noted that since the start of 2019, it has expanded the portfolio by 13.9 million net rentable square feet on the back of buyouts, development and redevelopment worth $1.9 billion. This also included properties under contract and the acquisition of the Beyond Storage portfolio.

During the same period, Public Storage has delivered $471 million of properties through its development platform and has a current pipeline of $563 million activity planned. This is in addition to the $1.3 billion previously delivered in 2013-2018. Public Storage has also enhanced the scale of its third-party property management business by adding 113 properties. Such acquisition and expansion initiatives are also anticipated to have stoked growth during the period under consideration.

Moreover, the self-storage asset category is need-based and recession-resilient in nature. This asset class has low capital-expenditure requirements and generates high operating margins. Additionally, the self-storage industry continues to benefit from favorable demographic changes. Specifically, migration and downsizing trends, and increase in the number of people renting homes have escalated the needs of consumers to rent spaces at storage facilities for parking their possessions. Further, demand for self-storage spaces has shot up amid the remote-working trend as well as improving housing market, while move-outs remain low amid the health crisis, resulting in improved year-over-year occupancy trends.

Additionally, Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand these challenging times, and bank on expansion opportunities through acquisitions and developments. This is likely to have continued in the fourth quarter as well.

However, the company operates in a highly-fragmented market in the United States, with intense competition from numerous private, regional and local operators. Also, there is a development boom of self-storage units in several markets. This high supply is likely to have fueled competition, curbed its power to raise rents and turned on more discounting during the quarter under consideration. Furthermore, stress on customers’ financial capacity might have affected rent collections.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues from self-storage facilities is currently pinned at $681 million, suggesting a marginal increase from $677 million in the year-ago period. Quarterly revenues from ancillary operations are presently projected to be $42.93 million, indicating a rise from the $40.47 million registered in the comparable period prior year.

The Zacks Consensus Estimate for quarterly revenues is currently pinned at $732.1 million, calling for a 2% year-over-year increase.

Apart from this, Public Storage’s activities during the quarter under review were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the fourth-quarter FFO per share has been revised three cents upward to $2.85 in a month’s time. It also calls for 0.35% year-over-year growth.

For the full year, the Zacks Consensus Estimate for FFO per share has been revised 3 cents upward to $10.51 over the past month. The figure, however, suggests a 2.2% decrease year on year. Revenues are projected to be up 2.03% year over year to $2.9 billion.

Here is what our quantitative model predicts:

Our proven model predicts a positive surprise in terms of FFO per share for Public Storage this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Public Storage carries a Zacks Rank #3 and has an Earnings ESP of +0.53%.

Other Stocks to Consider

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these too have the right combination of elements to report a positive surprise this quarter:

American Tower Corporation (AMT - Free Report) , set to report quarterly numbers on Feb 25, currently has an Earnings ESP of +7.49% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Life Storage, Inc. (LSI - Free Report) , slated to release earnings figures on Feb 22, has an Earnings ESP of +0.43% and holds a Zacks Rank of 3, currently.

National Storage Affiliates Trust (NSA - Free Report) , scheduled to announce fourth-quarter results on Feb 22, has an Earnings ESP of +4.30% and carries a Zacks Rank of 2 at present.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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