Shares of Public Storage PSA scaled a new 52-week high of $253.93 on Dec 29, finally closing the session at $252.21. Year to date, the Glendale, CA-based self storage real estate investment trust (REIT) has seen its stock rally, increasing nearly 40%, as robust demand amid lower supply has given a boost to the entire industry.
With the company’s stock popping up to its highest point in a year, some investors may steer clear, thinking there is not much upside – which is true in certain cases. But, a high flying share price does not necessarily imply it's not a bargain right now.
In the case of Public Storage, there are three solid reasons to buy the stock even considering that it has already had an amazing run. The Zacks Rank #2 (Buy) seems to suggest the same.
First, Public Storage is one of the largest owners and operators of storage facilities in the U.S. The company also has presence in the European markets, through the acquisition of Shurgard Storage Centers. We believe its strong brand image and solid presence in key cities serve as growth drivers. Acquisition initiatives are further likely to aid growth.
Second, an improving economy resulted in higher product usage and modest pricing power. On the other hand, lack of new supply essentially helped the company to lower its marketing expenses and promotional discounts, and raise prices for new customers. Hence, an increased demand and modest new supply offer the company ample scope to augment its bottom line, going forward.
Finally, Public Storage's third-quarter results were solid with an earnings surprise of 0.89% in the third quarter 2015. From same-store operating income to revenue growth, all key metrics are moving in the right direction for the company. What’s more, a positive Earnings ESP of 1.25% combined with a Zacks Rank #2 conclusively show that Public Storage is likely to beat the Zacks Consensus Estimate in the upcoming results. This should excite investors.
In fact, its historical EPS growth (3–5 years) of 11.28% is well above the industry average of 6.49%. Moreover, its earnings momentum is expected to continue in the near term as reflected by the company’s projected EPS growth (F1/F0) of 8.35% compared with the industry average rate of 7.20%. This reflects good prospects for the company.
In Conclusion
Therefore given the improving fundamentals of the storage real estate sector and superior performance of its properties and strategic acquisitions, we believe Public Storage stock has the potential to move even higher. Echoing similar sentiments, the Zacks Consensus Estimate over the last 30 days increased 2 cents to $8.77 for 2015 and 8 cents to $9.60 per share for 2016.
Other Stocks to Consider
Some other stocks in the REIT industry that you can consider are CubeSmart CUBE, Extra Space Storage Inc. EXR and Sovran Self Storage Inc. SSS. Each of these stocks carries the same Zacks Rank as Public Storage.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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.
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