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Is it Wise to Hold On to Public Storage (PSA) Stock Now?

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Public Storage’s (PSA - Free Report) high brand value, solid operating platform and healthy balance-sheet strength position it well for long-term growth. However, development boom of self-storage units in many markets is a concern.

This self-storage REIT is one of the largest owners and operators of storage facilities in the United States. The ‘Public Storage’ brand is the most recognized and established name in the self-storage industry, with presence across all major metropolitan markets of the United States. Thus, the company is likely to gain from economies of scale, apart from benefiting from brand recognition. It is also leveraging on technology for revenue optimization and cost efficiencies, and has invested in technologies, as such, in the past few years.

In addition, Public Storage has been capitalizing on growth opportunities. This April, the company announced closing the buyout of ezStorage for $1.8 billion. This transaction is immediately accretive to FFO. The acquisition brings in a portfolio of 48 properties, encompassing 4.2 million net rentable square feet, to Public Storage’s platform.

The self-storage REIT has, in fact, enhanced its portfolio by 22 million net rentable square feet, or 13%, through $4.3 billion of acquisitions, development, and redevelopment since the start of 2019. With a solid access to capital at low interest rates, the company is well poised to take advantage of a potential opportunity.

Public Storage has one of the strongest balance sheets in the sector, with adequate liquidity to withstand the current challenging times, and bank on expansion opportunities through acquisitions and developments. The company exited first-quarter 2021 with $159.6 million of cash and equivalents, and $475.7 million of available borrowing capacity on its revolving line of credit. The REIT has no material debt maturity until September 2022. Moreover, the company’s debt maturity schedule is well-laddered that moderate its refinancing risk. As such, it seems well poised to take advantage of a potential opportunity.

Furthermore, the industry is characterized by fragmented ownership and only around 30% of the total self-storage square footage is under REIT’s ownership, including that of Extra Space Storage (EXR - Free Report) , CubeSmart (CUBE - Free Report) and Life Storage (LSI - Free Report) among others. This creates ample scope for consolidation at some level in the future and with a solid scale, decent balance-sheet strength and technology advantage, Public Storage remains well poised to compete for acquisitions.

Shares of this Zacks Rank #3 (Hold) company have outperformed its industry in three months’ time. The company’s shares have rallied 20.5%, while the industry has gained 12.1%. Moreover, the trend in estimate revisions for 2021 funds from operations (FFO) per share indicates a favorable outlook for the company, with the estimate moving 1.7% north over the past month. Therefore, given the progress on fundamentals and upward estimate revisions, the stock has a decent upside potential.


 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nonetheless, supply has been increasing in a number of markets in recent years. Besides, amid highly fragmented market in the United States, there is intense competition from numerous private, regional and local operators. This is likely to fuel competition for the company, affecting occupancies, curbing its power to raise rents and turn on more discounting.

Apart from this, vacates are still down for Public Storage and are helping the occupancy level to remain high. However, such factors are likely to moderate as tenants revert to more normal move-out behavior as the impact of the pandemic abates, leading to upward pressure on vacate trends, and resulting in adverse pressure on rate growth in many markets. These, particularly, impact the company’s ability to raise move-in rents as well as the existing tenant price increases over time.

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Life Storage, Inc. (LSI) - free report >>

Public Storage (PSA) - free report >>

Extra Space Storage Inc (EXR) - free report >>

CubeSmart (CUBE) - free report >>