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What's in the Cards for Public Storage's (PSA) Q4 Earnings?

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Public Storage PSA is slated to release fourth-quarter and full-year 2019 numbers on Feb 25, after the closing bell. The company’s quarterly performance is likely to reflect growth in revenues as well as funds from operations (FFO) per share.

In the last reported quarter, this self-storage real estate investment trust (REIT) reported a negative surprise in terms of FFO per share of 0.36%. Results highlighted the unfavorable impact of higher expenses in the quarter for its same-store facilities, stemming from elevated marketing expenses and property taxes. Nevertheless, higher realized annual rent per occupied square foot and uptick in occupancy supported its same-store revenues.

Over the trailing four quarters, the company surpassed estimates on two occasions, met in another and missed in the other period, the average positive beat being 0.19%. 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 are shaping up for this announcement.

Factors to Consider

Favorable demographic changes, healthy 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 for Public Storage in the fourth quarter. Thus, the company is likely to have benefited from solid fundamentals in the self-storage industry, with its robust scale and high brand value.

Moreover, since the beginning of 2013 through Sep 30, 2019, it has acquired 328 facilities with 22.8 million net rentable square feet from third parties, for approximately $3 billion. Additionally, the company opened newly-developed and expanded self-storage space, for a total cost of $1.5 billion, adding around 14.5 million net rentable square feet. Such acquisition and expansion initiatives are also anticipated to have stoked growth in the period under consideration.

Following Sep 30, 2019, the company acquired or was under contract to acquire eight self-storage facilities, spanning 0.6 million net rentable square feet of space, for $69.6 million. Finally, as of Sep 30, 2019, the company had several facilities in development (1.3 million net rentable square feet), with an estimated cost of $219 million, as well as expansion projects (2.4 million net rentable square feet) worth roughly $313 million. These efforts are likely to have continued in the December-end quarter as well, supporting the company’s performance.

As such, revenues are likely to have grown during the October-December period. The Zacks Consensus Estimate for quarterly revenues is currently pinned at $720.2 million, depicting 4% year-over-year growth. The Zacks Consensus Estimate for the fourth-quarter FFO per share is pinned at $2.86, indicating an uptick of 1.8% year over year.

Nevertheless, 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 anticipated to have been elevated in the to-be-reported quarter. This is likely to have intensified competition for the company, curbing its power to raise rents and turning on more discounting. Additionally, escalation in property tax and marketing expense are resulting in elevated expense levels, which is another concern.

Apart from these, Public Storage’s activities during the quarter were inadequate to gain adequate analyst confidence.

The Zacks Consensus Estimate for full-year FFO per share is currently pinned at $10.74, indicating a 1.7% year-over-year increase on revenues of $2.85 billion.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict 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 odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Public Storage carries a Zacks Rank of 2, its Earnings ESP of 0.00% makes surprise prediction difficult.You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Prologis, Inc. PLD currently carries a Zacks Rank of 2. The company’s 2020 FFO per share estimate has been revised 2.5% upward to $3.72 in a month’s time. The stock has rallied 9.2% in three months’ time.

Highwoods Properties, Inc.’s HIW Zacks Consensus Estimate for the current-year FFO per share moved marginally upward to $3.63 over the past month. Shares of this Zacks Rank #2 company have gained 9.1% over the past three months.

Boston Properties, Inc. BXP also carries a Zacks Rank of 2, currently. The company’s ongoing-year FFO per share estimate moved marginally north to $7.59 in a month’s time. The stock has rallied 6% in the past three months.

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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