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Public Storage Stock Earnings Beat Is Not a Reason to Buy — Yet

Will Healy

Public Storage (NYSE:PSA) rose as it beat earnings estimates. With close to 2,600 properties, PSA stands as the largest storage unit rental company in the country. However, concerns of oversupply and stagnant profit growth have weighed on PSA stock.

The falling stock price has given the company a valuation lower than most competitors. This lower multiple and PSA’s high dividend yield could again make Public Storage stock an attractive investment — eventually.

Public Storage Stock Beat on Earnings, Missed on Revenue

PSA reported fourth-quarter 2017 earnings of $1.92 per share. This beat estimates by two cents per share. The company earned $2.03 in Q4 2016. Revenue for the quarter came in at $672.31 million. Although this represents a 3.2% increase from the same quarter in 2016, it missed estimates by $7.66 million. When measured by funds from operations (FFO), the company earned $2.75 per share for the fourth quarter. FFO measures exclude foreign currency fluctuations and many types of non-cash income and expense items. Earnings reports for REITs often include this measure.

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For 2017, net income came in at $6.73 per share. This represents a drop from 2016 when the company earned $6.81 per share. Revenue for the year came in at $2.67 billion, up from $2.56 billion in 2016. FFO net income was $9.70 per share for 2017.

The PSA stock price increased following this news.

Public Storage Stock Retains Its Largest Presence in a Stable Industry

PSA also dominates this industry regarding market share. Other competitors such as Extra Space Storage, Inc. (NYSE:EXR), Cubesmart (NYSE:CUBE), Life Storage Inc (NYSE:LSI), National Storage Affiliates Trust (NYSE:NSA) and Amerco (NASDAQ:UHAL) (operating under the U-Haul brand) offer the same storage services. However, Public Storage’s market share remains the largest. It operates nearly as many facilities as Amerco and Extra Space storage combined.

One benefit, as our own Will Ashworth pointed out, is the company’s lack of desire to part with our things. The industry’s recession-proof nature also helps, as it provides a storage alternative for those who have to hold on to their things in hard times.

Dividends and Falling Multiples Will Eventually Attract Investors

Another benefit of owning PSA stock lies in its dividend. PSA stock pays $8 per share in annual dividends. This gives the stock a yield of about 4.25%. PSA has also increased this dividend every year since 2010. The fact that the company also operates as a real estate investment trust (REIT) forces the company to pay 90% of its profits in dividends. Also, since FFO for 2017 came in at $9.70 per share, the company can sustain this dividend without adding debt or selling assets.

Its current price-to-earnings (PE) ratio, stands at 27.6. While this number remains slightly higher than the S&P 500 average, the dividend yield is almost 2.5 times higher than the S&P. Of its competitors, Amerco trades at a PE ratio below 10. All other storage companies have higher multiples. And while it pays a dividend, Amerco dividends remain low and inconsistent. For competitors who want a cheap stock in this industry, UHAL stands out. However, for those investors looking for dividend payments, Public Storage stock remains the choice in the storage industry.

However, investors should not buy yet. A worry remains that the seemingly relentless downtrend that’s affected PSA stock for the last two years. It has lost about one-third of its value since peaking in 2016. The stock has fallen on supply concerns, and its past higher valuation weighed on the stock. However, its PE ratio has fallen to its lowest level since 2009. At this stage, investors should watch for signs that the stock can sustain itself above 50- or 200-day moving averages. Also, if the PE falls below 20 as it did during the 2008 financial crisis, investors should then look to buy Public Storage stock.

Final Thoughts on Public Storage Stock

Falling stock prices and rising dividends are positioning Public Storage stock to become a great buy — in the future. However, although the company the latest beat earnings estimates, earnings fell slightly from last year.

Still, with Americans wanting to retain their possessions, PSA provides the most space with which to store these items. The company has also maintained high-yielding dividends that move higher in most years.

The one concern remains the stock’s inability to break the downtrend in its stock price. If the stock can stay above its moving average or achieve a lower PE ratio, Public Storage stock will then become a great choice for both item storage and storage of one’s investment capital.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.

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