Earnings Preview: Public Storage - Analyst Blog
February 17 2012 - 12:00PM
Zacks
Public Storage
(PSA), a leading real estate investment trust (REIT) operating
self-storage facilities, is scheduled to report its fiscal 2011
fourth quarter earnings on February 23, 2012. The current Zacks
Consensus Estimate for the second quarter is $1.59 per share,
representing a year-over-year increase of about 19.3%.
Third Quarter
Recap
Public Storage reported third
quarter 2011 FFO (funds from operations) of $1.29 per share,
compared with $1.69 in the year-earlier quarter. Fund from
operations, 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.
Excluding several non-recurring
items, FFO for third quarter 2011 was $1.56 per share compared with
$1.35 in the year-ago quarter. Recurring FFO for third quarter 2011
exceeded the Zacks Consensus Estimate by 12 cents.
During the reported quarter, Public
Storage recorded an increase in total revenues to $453.0 million
from $422.3 million in the year-earlier quarter. Total revenues for
the reported quarter were well ahead of the Zacks Consensus
Estimate of $428 million.
Magnitude of Estimate
Revisions
For fourth quarter 2011, earnings
estimates have remained steady in the last 7 days at $1.59.
Earnings estimates for fiscal 2011 have also remained stagnant for
the last 7 days at $5.78 per share. This represents that the
analysts are overtly cautious about both the short and long-term
outlook of the company.
Our
Recommendation
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’ rating on
Public Storage, which currently has a Zacks #2 Rank (short-term
‘Buy’ rating). We also have a ‘Neutral’ recommendation and a Zacks
#2 Rank for Sovran Self Storage Inc. (SSS), one of
the competitors of Public Storage.
PUBLIC STORAGE (PSA): Free Stock Analysis Report
SOVRAN SLF STOR (SSS): Free Stock Analysis Report
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