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Extra Space
Storage Inc. (EXR)
Since we
last mentioned EXR as a
growth and income stock back in June of 2011, it was trading
right
around $20. Back then the company had
delivered a strong earnings report noting high occupancy rates and
other
factors that encouraged them to raise FY2011 guidance.
Flash
forward 8 months and EXR is
trading 36% higher and looking more like a momentum stock.
Let’s not forget the fact that Extra Space is
still throwing off a 2.05% dividend as a bit of icing on the cake.
The question is whether the strength will
continue?
Company Description &
Developments
Extra
Space Storage Inc. is a real estate investment trust (REIT),
headquartered in
Salt Lake City, Utah that owns and operates over 800 self-storage
properties in
major cities across the U.S.
The
Company’s properties comprise approximately 550,000 units and over 59
million
square feet of rentable space, offering customers a wide selection of
conveniently located and secure storage solutions across the country,
including
boat storage, RV storage and business storage. Extra Space is the
second
largest owner and/or operator of self-storage properties and the largest self-storage management company in the United
States.
The
boom in storage is being driven
by several factors within the housing sector.
The first of which being extremely high apartment rent rates across the
US. Average rents have risen substantially
since the prices of homes have been on the decline. When the
economy took a downturn in
2008, the loss of jobs and defaults in mortgages forced US consumers
out of their
homes and into apartments. As housing
prices continued to slide, more and more Americans were abandoning
their mortgage
and homes, opting for rental property. Expensive rentals may
force Americans to live in a smaller place and store their goods
offsite.
Being
that the jobs market is still
shaky and the average American is still unsure about the future of our
economy
and home values, apartments are the best, flexible alternative.
Being
that most people have had to
downsize their living space or are needing to save money on living
expenses,
the storage unit has become an integral part of many urban households.
We are a culture that likes “stuff” and even
those who don’t hoard tons of extras might still need room for
that
entertainment center that mom gave you that just doesn’t fit anymore.
She’d kill you if you were to sell it. 🙂
In all
seriousness, self storage is growing
in need and popularity; at least until the housing boom comes back and
we are
all able to buy 5000 square ft. homes with 4 car garages.
Until then expect demand to remain.
Financial Profile
Extra Space is a small-cap (2.5 billion) company that is trading at
about 58
times trailing earnings (P/E). This makes it a bit expensive
when you
compare it to the broad market average, but EXR is a growth company
that
recently guided earnings higher on October 27, 2011. Looking
forward, Zacks Consensus Estimates
are calling for that number to drop closer to 20 with no change in
price over
the next year.
Extra
Space became a Zacks Rank 1
strong buy on January 25th, but they have been between a Rank 1 and
2 since the 17th of January.
The
storage company reported a
quarterly sales increase of 8% at their last earnings report.
Annual
sales were up 17% compared to Q32010 with total sales of roughly 281
million in
FY2010. Extra is expected to earn $1.18 in FY2011 according
to the Zacks
Consensus Estimate.
Earnings Estimates
Even though EXR is a small cap, there are about 13 analysts covering
the
issue. One of them raised estimates higher for the
current
quarter and three moved estimates up for FY2012 over the past
month. EXR will
report Q42011 results on February 21st.
Expectations
are for EXR to generate
$0.32 in income this quarter. Of the 13 analysts who cover
EXR, the
consensus is for the company to grow earnings by 23% in the current
year
(FY2011) and roughly 15% in FY2012.
In
terms of the magnitude of analyst
estimate trends, we are seeing all of the consensus estimates flat or
higher
than they were 90 days ago for the current and next quarters as well as
FY2011 and
FY2012.
EXR
beat estimates last quarter by 10%
and has averaged to beat estimates by over 7% during the past year’s
earnings.
Market Performance &
Technicals
Like most of our momentum stocks, Extra’s charts are very strong and
have been
rallying for some time. October marked
the 52 low for EXR and since then the stock has leapt more than 56%.
Lately the stock has been making new 52 week
highs and is just pennies away from it’s current annual high of $27.44
Extra
Space has remained above its
50 and 200 day moving averages since it broke above the both of them in
late
October. The averages currently stand at
$24.65 (50 day) and $21.92 (200 day).
EXR
has been riding along the upper
edge of its Bollinger Band for several weeks of trading. This
pattern typically leads to a mean
reversion which would send shares lower over the short term. I’d
look for a pullback to the $25 level before jumping into EXR based on
this
formation. EXR has exceeded the S&P
500’s performance by over 36% in the past year and over 9% in the past
3 months
alone.
Jared
A Levy is the
Momentum Stock Strategist for Zacks.com. He is also the Editor in
charge of the
market-beating Zacks
Whisper Trader Service.
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