Public Storage (PSA - Analyst Report) , a leading real estate investment trust (REIT) operating self-storage facilities, reported 2012 second quarter recurring funds from operations (FFO) of $1.62 per share. Recurring FFO for the reported quarter marked a year-over-year increase of 13.3% and beat the Zacks Consensus Estimate by $0.09.
We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook of the stock.
Earnings Report Review
Public Storage reported second quarter 2012 FFO of $1.38 per share, compared with $1.39 in the year-earlier quarter. The marginal decrease in reported FFO despite improved property operations was primarily due to the adverse impact of foreign currency translations.
During the reported quarter, Public Storage recorded a 5.4% increase in total revenues to $457.7 million from $434.4 million in the year-earlier quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $430 million.
(Read our full coverage in this earnings report: Public Storage Recurring FFO Zooms)
Earnings Estimate Revisions - Overview
Overall fiscal earnings estimates have moved in both directions for Public Storage since the earnings release, meaning that analysts are circumspect about the long-term performance of the company. Let’s dig into the earnings estimate details.
Agreement of Estimate Revisions
In the last 7 days, 2012 earnings estimates were raised by one analyst out of 19 covering the stock, while four lowered theirs. For 2013, five out of 19 analysts covering the stock revised their estimates upward, while none had reduced it. This indicates no distinctive directional movement for the fiscal year earnings.
Magnitude of Estimate Revisions
Earnings estimates for 2012 have decreased by 3 cents in the last 7 days to $6.29. For 2013, earnings estimates have, however, increased in the same time period by 5 cents to $6.90.
The long-term earnings estimate picture for Public Storage is neutral. Public Storage is the largest owner and operator of storage facilities in the U.S., which has enabled it to achieve large economies of scale and generate high operating margins.
The Public Storage brand is the most recognized and established name in the self-storage industry with a presence in all the major markets across 38 states in the U.S. In addition, the storage facilities of the company have a high visibility and are usually located in heavily populated areas that improve the local awareness of the brand. The company also has one of the strongest balance sheets in the sector with minimal debt maturities and adequate liquidity.
However, Public Storage operates in a highly fragmented market in the U.S., with intense competition from numerous private regional and local operators. Demand for storage facilities has also witnessed a significant drop from its peak level prior to the recession, as customers have reduced their discretionary spending. This undermines the long-term growth potential of the company.
We maintain our Neutral recommendation on Public Storage, which currently has a Zacks #3 Rank that translates in to a short-term Hold rating. We also have a Neutral recommendation and a Zacks #2 Rank (short-term Buy rating) for Sovran Self Storage Inc. , one of the competitors of Public Storage.
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrated stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at https://www.zacks.com/education/