Is Pioneer Select Mid Cap Growth A (PGOFX) a Strong Mutual Fund Pick Right Now?
Shares of Extra Space Storage Inc. EXR have outperformed the industry it belongs to, in the past three months. The company’s shares have gained 10.8%, while the industry recorded 5% growth, during this time period.
Notably, there are enough reasons to expect a solid upside for this self-storage REIT stock. Particularly, the earnings outlook and fundamentals of Extra Space Storage appear assertive enough to drive its stock higher in the near term.
The company has been making concerted efforts to expand its business around large population centers and diversify geographically. Extra Space Storage has significantly expanded its business in recent years, growing its branded store count from 694 in 2008 to 1,523 in first-quarter 2018. Also, total stores managed for third-party owners increased from 185 in 2011 to 456 in the reported quarter.
Moreover, over the past five years, Extra Space Storage acquired $4.5 billion in properties. The company gained an elevated scale in several core markets on the back of these acquisitions, as well as fortified its presence in a number of new markets.
As a result, this Salt Lake City, UT-based self-storage REIT emerged as the second largest self-storage operator, as well as the largest self-storage management company in the United States. Majority of this REIT’s stores are situated around large population centers which enjoy above-average population and income demographics for stores.
In addition, the self-storage asset category is basically need-based and recession-resilient in nature. This asset class has low capital expenditure requirements and generates high operating margins. Additionally, the self-storage industry is likely to continue experiencing solid demand, backed by favorable demographic changes, and events like marriages, shifting, death and even divorce.
Extra Space Storage enjoyed a historical cash flow growth (3-5 years) of 27.9%, which comfortably exceeded the industry’s growth of 17.3%. Additionally, the company’s current cash flow growth of 16.3% is way ahead of the industry’s rate of 6.2%.
Also, its Return on Equity (ROE) is 18.9% compared with the industry’s average of 4.9%. This reflects that the company reinvests more efficiently compared to the industry. Further, the company remains committed to boost shareholders’ wealth. It has achieved five-year total increase of a whopping 212% in dividend.
Moreover, in May, ushering in good news for its shareholders, Extra Space Storage announced a 10.3% hike in its quarterly cash dividend. The company will now pay a dividend of 86 cents per share, up from 78 cents paid earlier. The raised dividend will be paid on Jun 29, to shareholders of record as of Jun 15, 2018. Such shareholder-friendly efforts are encouraging.
Furthermore, the industry is characterized by fragmented ownership, and only around 20% of the total self-storage square footage is under REIT’s ownership. This creates solid scope for consolidation at some level in the future and with a solid balance sheet, Extra Space Storage remains well poised to compete for acquisitions.
Moreover, the trend in estimate revisions indicates a solid earnings outlook for this Zacks Rank #2 (Buy) stock. In fact, the Zacks Consensus Estimate for 2018 FFO per share has witnessed 0.4% upward revision in a month’s time. Given its progress on the fundamentals, the stock is likely to perform well in the quarters ahead.
Stocks to Consider
Investors can also consider other similarly-ranked stocks in the real estate space like Host Hotels & Resorts, Inc. HST, Lamar Advertising Company LAMR and Prologis, Inc. PLD. All three stocks carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Host Hotels’ Zacks Consensus Estimate for 2018 funds from operations (FFO) per share has risen 3% to $1.71 in two months’ time. Its shares have returned 20.2% over the past year.
Lamar’s FFO per share estimates for the current year inched up 1.1% in a week’s time to $5.40. Its shares have gained 1.2% in a year’s time.
Prologis’ FFO per share estimates for 2018 have inched up 1% to $2.98 over the past month. Its shares have appreciated 15.4% in the past year.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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