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Here's Why Public Storage (PSA) is an Apt Portfolio Pick Now
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Public Storage (PSA - Free Report) 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 its presence in all the major metropolitan markets of the country.
It is well-positioned to benefit from favorable self-storage industry fundamentals, investments in technology and a robust balance-sheet position.
Analysts seem bullish on this Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share indicates a favorable outlook as it has increased marginally over the past month to $15.73.
Shares of PSA have lost 9.6% in the past three months, narrower than the industry's decline of 16.9%. Given its robust fundamentals and positive estimate revisions, the stock is likely to keep performing well in the quarters ahead, hence the dip offers a good entry point.
Image Source: Zacks Investment Research
What Makes Public Storage a Solid Pick?
Solid Industry Fundamentals: The self-storage asset category is basically need-based and recession-resilient in nature. This asset class has low capital-expenditure requirements and generates high operating margins. The favorable demographic changes continue to benefit this asset category. Particularly, the demand for storage facilities has increased, given the consumers' need to park their possessions amid migration and downsizing trends and a rise in the number of people renting homes. Also, work-from-home, study-from-home, elevated home sales and remodeling and the in-and-out migration of metropolitan markets have aided demand for storage facilities.
Technology Investments: To achieve revenue optimization and cost efficiency, the company has invested heavily in technology over the past few years. To enhance its move-in experience, PSA started the “eRental®” process in 2020. Last year, the company launched the Public Storage App, offering customers a new tool to access their properties through smartphones. These provide PSA with a competitive edge over its peers.
Acquisitions & Development: Public Storage has been focusing on several acquisitions to maximize its growth opportunities. In the June quarter, Public Storage acquired 10 self-storage facilities comprising 0.7 million net rentable square feet of area for $123.6 million. Following Jun 30, 2022, it acquired or was under contract to acquire 24 self-storage facilities spanning 1.7 million net rentable square feet of space across 10 states for $257.4 million.
As of Jun 30, 2022, PSA had several facilities in development (2.6 million net rentable square feet) with an estimated cost of $480.3 million and expansion projects (2.8 million net rentable square feet) worth $547.0 million.
Moreover, for 2022, the company expects to carry out acquisitions of around $1 billion and $250 million of development openings.
FFO Growth: Over the past three to five years, PSA recorded FFO per share growth of 6.03% compared with the industry’s average of 0.70%. The Zacks Consensus Estimate for the 2022 FFO per share implies a rise of 21.66% for 2022 compared with the industry’s average of 10.22%.
Balance Sheet & Cash Flow Strength: PSA has one of the strongest balance sheets in the sector with ample liquidity. It exited second-quarter 2022 with $1.01 billion of cash and equivalents. Also, it enjoys an “A” credit rating from Standard & Poor’s and an “A2” from Moody’s, rendering it favorable access to the debt market. With enough financial flexibility, PSA is well-poised to capitalize on future growth opportunities.
PSA’s current cash flow growth is projected at 39.58% compared with the 9.64% growth projected for the industry. Moreover, its trailing 12-month return on equity (ROE) is 40.19% compared with the industry’s average of 3.60%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Life Storage , CubeSmart (CUBE - Free Report) and Xenia Hotels & Resorts (XHR - Free Report) .
The Zacks Consensus Estimate for Life Storage’s ongoing year’s FFO per share has been raised marginally over the past month to $6.39. LSI currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CubeSmart’s current-year FFO per share has moved 2.5% northward in the past two months to $2.50. CUBE holds a Zacks Rank #2 presently.
The Zacks Consensus Estimate for Xenia Hotels & Resorts’ 2022 FFO per share has moved 7.4% upward in the past two months to $1.59. XHR presently carries a Zacks Rank of 2.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Here's Why Public Storage (PSA) is an Apt Portfolio Pick Now
Public Storage (PSA - Free Report) 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 its presence in all the major metropolitan markets of the country.
It is well-positioned to benefit from favorable self-storage industry fundamentals, investments in technology and a robust balance-sheet position.
Analysts seem bullish on this Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share indicates a favorable outlook as it has increased marginally over the past month to $15.73.
Shares of PSA have lost 9.6% in the past three months, narrower than the industry's decline of 16.9%. Given its robust fundamentals and positive estimate revisions, the stock is likely to keep performing well in the quarters ahead, hence the dip offers a good entry point.
Image Source: Zacks Investment Research
What Makes Public Storage a Solid Pick?
Solid Industry Fundamentals: The self-storage asset category is basically need-based and recession-resilient in nature. This asset class has low capital-expenditure requirements and generates high operating margins. The favorable demographic changes continue to benefit this asset category. Particularly, the demand for storage facilities has increased, given the consumers' need to park their possessions amid migration and downsizing trends and a rise in the number of people renting homes. Also, work-from-home, study-from-home, elevated home sales and remodeling and the in-and-out migration of metropolitan markets have aided demand for storage facilities.
Technology Investments: To achieve revenue optimization and cost efficiency, the company has invested heavily in technology over the past few years. To enhance its move-in experience, PSA started the “eRental®” process in 2020. Last year, the company launched the Public Storage App, offering customers a new tool to access their properties through smartphones. These provide PSA with a competitive edge over its peers.
Acquisitions & Development: Public Storage has been focusing on several acquisitions to maximize its growth opportunities. In the June quarter, Public Storage acquired 10 self-storage facilities comprising 0.7 million net rentable square feet of area for $123.6 million. Following Jun 30, 2022, it acquired or was under contract to acquire 24 self-storage facilities spanning 1.7 million net rentable square feet of space across 10 states for $257.4 million.
As of Jun 30, 2022, PSA had several facilities in development (2.6 million net rentable square feet) with an estimated cost of $480.3 million and expansion projects (2.8 million net rentable square feet) worth $547.0 million.
Moreover, for 2022, the company expects to carry out acquisitions of around $1 billion and $250 million of development openings.
FFO Growth: Over the past three to five years, PSA recorded FFO per share growth of 6.03% compared with the industry’s average of 0.70%. The Zacks Consensus Estimate for the 2022 FFO per share implies a rise of 21.66% for 2022 compared with the industry’s average of 10.22%.
Balance Sheet & Cash Flow Strength: PSA has one of the strongest balance sheets in the sector with ample liquidity. It exited second-quarter 2022 with $1.01 billion of cash and equivalents. Also, it enjoys an “A” credit rating from Standard & Poor’s and an “A2” from Moody’s, rendering it favorable access to the debt market. With enough financial flexibility, PSA is well-poised to capitalize on future growth opportunities.
PSA’s current cash flow growth is projected at 39.58% compared with the 9.64% growth projected for the industry. Moreover, its trailing 12-month return on equity (ROE) is 40.19% compared with the industry’s average of 3.60%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Life Storage , CubeSmart (CUBE - Free Report) and Xenia Hotels & Resorts (XHR - Free Report) .
The Zacks Consensus Estimate for Life Storage’s ongoing year’s FFO per share has been raised marginally over the past month to $6.39. LSI currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CubeSmart’s current-year FFO per share has moved 2.5% northward in the past two months to $2.50. CUBE holds a Zacks Rank #2 presently.
The Zacks Consensus Estimate for Xenia Hotels & Resorts’ 2022 FFO per share has moved 7.4% upward in the past two months to $1.59. XHR presently carries a Zacks Rank of 2.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.