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What's in the Cards for Public Storage's (PSA) Q2 Earnings?

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Public Storage (PSA - Free Report) is slated to release second-quarter numbers on Jul 30, after market close.

In the last reported quarter, this self-storage real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share. Results highlighted higher realized annual rent per occupied square foot that supported the company’s same-store performance.

The company has a decent surprise history. In fact, it exceeded estimates in three of the preceding four quarters, resulting in an average positive surprise of 0.75%. This is depicted in the graph below:

Public Storage Price and EPS Surprise
 

Let’s see how things are shaping up for this announcement.

Factors to Consider

Public Storage 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 in all major metropolitan markets of the United States. With its robust scale and high brand value, the company is likely to have benefited from favorable fundamentals in the self-storage industry.

Favorable demographic changes, improving job market and rising incomes, migration and downsizing trend, and declining home ownership and the resultant increase in the number of people renting homes are likely to have spurred demand for self-storage spaces in the period under consideration.

Acquisition and expansion initiatives are also anticipated to stoke growth. Since the beginning of 2013 through Mar 31, 2019, the company acquired 308 facilities with 21.4 million net rentable square feet from third parties for around $2.7 billion. Additionally, the company opened a newly-developed and expanded self-storage space for $1.4 billion, adding approximately 12.9 million net rentable square feet over this period.

Moreover, following Mar 31, 2019, the company acquired or was under contract to acquire 10 self-storage facilities, spanning 0.7 million net rentable square feet of space, for $116.4 million. Also, as of Mar 31, 2019, the company had several facilities in development (1.2 million net rentable square feet), with an estimated cost of $194 million, as well as expansion projects (2.7 million net rentable square feet) worth roughly $318 million. Such efforts are likely to continue in the second quarter as well, boosting the company’s performance.

Particularly, revenues are likely to grow in the quarter. The Zacks Consensus Estimate for revenues is currently pinned at $705.1 million, depicting nearly 2.9% growth.

However, Public Storage operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, in recent years, supply has been increasing in a number of markets. Particularly, deliveries are expected to remain elevated in the to-be-reported quarter, likely intensifying competition for the company, curbing its power to raise rents and turning on more discounting.

Amid these, the Zacks Consensus Estimate for the second-quarter FFO per share is pinned at $2.64, indicating a slip of 0.4% year over year. In addition, Public Storage’s activities during the April-June quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for the quarter’s FFO per share remained unchanged over the past month.

Here is what our quantitative model predicts:

Public Storage has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Earnings ESP: The Earnings ESP for Public Storage is +0.35%.

Zacks Rank: Public Storage carries a Zacks Rank #2 (Buy), currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

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

Life Storage, Inc. (LSI - Free Report) , scheduled to release earnings on Jul 31, has an Earnings ESP of +0.12% and currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Federal Realty Investment Trust (FRT - Free Report) , slated to report second-quarter results on Aug 1, has an Earnings ESP of +0.57% and currently carries a Zacks Rank of 2.

Kimco Realty Corporation (KIM - Free Report) , set to report quarterly results on Jul 25, has an Earnings ESP of +2.49% and currently carries a Zacks Rank of 3.

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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