U-Haul Parent Company Is a Bargain
- By Jonathan Poland
If a company's success is judged on book value growth, then Amerco has crushed it in the last 10 years. Over the decade, parent company of U-Haul increased its book value from $38 to $174 per share, its earnings from $68 million to $789 million and even expanded its operating margins from single digits to over 20%.
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The intrinsic value of UHAL
Now priced at just eight times earnings, the stock looks cheap even at $330 a share. Judged against its historical averages on price to book, the fair value on the stock is closer to $500. The 8x is a little deceptive considering the tax breaks every publicly traded company received late last year. Going into 2018, the earnings per share will be in the $20 range for the year, putting the P/E around 15x. The impact of the Tax Cuts and Jobs Act had a non-cash profit of $339 million, bringing the cash on the balance sheet to over $1 billion.
The last quarterly numbers should be uplifting to potential investors, with the top-line gaining over 6% in the last quarter thanks to transaction growth due to an increase in fleet size and occurred in both the one-way and point to point markets. In fact, all of the operating metrics improved, with gains in fleet size, company-owned locations and dealer locations. U-Haul also owns a bevy of storage facilities, many of which are on valuable land.
Recently, Amerco sold its Chelsea (Manhattan) property for $191 million and purchased offsetting properties, deferring any federal tax on the sale. The interesting part is that cities where the locations start are sometimes redeveloped, causing a significant increase in profit from a sale. I do think U-Haul has a durable competitive advantage. It's a business where people must go to rent the vehicle, and it can usually find undervalued properties to buy with very high margins. In Washington, D.C., there's a location in one of the hottest parts of the city's redevelopment, which will likely fetch a substantial profit if sold. In the meantime, it keeps making money with the influx of new residents.
Since company-owned stores are also leasing locations, the acquisitions of existing buildings converted to storage facilities gives a double benefit to operations. Even the decline in retail presents buying opportunities for U-Haul. In January, the company acquired a 109,500-square-foot former K-mart in Sioux City. Amerco is likely to step up its investments further increase its lead, holding off rivals like Budget and Penske.
The bottom line is this: People will continue to move, need storage and want convenience in transactions. All Amerco has to do is keep building its fleet and storage space and the book value will continue to grow.
Disclosure: I do not own UHAL, but may initiate a long position in the next 72 hours.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 3 Warning Signs with UHAL. Click here to check it out.
The intrinsic value of UHAL
