Digital Transformation And Global Acquisitions Will Open New Markets

Key Takeaways

• Strategic international expansion and digital transformation initiatives are set to drive revenue growth and optimize operating margins.
  
• A resilient industry and strong balance sheet support long-term earnings growth, even amid potential economic headwinds.
  
• Declining move-in rents and regulatory constraints challenge revenue growth, while market volatility and rising costs threaten long-term expansion and acquisition strategies.

Catalysts

A member of the S&P 500, is a REIT that primarily acquires, develops, owns, and operates self-storage facilities.

• Public Storage is experiencing increased move-in volumes and improved customer conversion, which are expected to drive revenue growth as occupancy rates close the gap with previous levels and the same-store revenue growth turns positive.
  
• The company's focus on international expansion through acquisitions, such as the proposed acquisition of Abacus Storage King, is anticipated to contribute to revenue growth and portfolio diversification across new markets.
  
• Public Storage's ongoing digital transformation, with a high percentage of customer interactions being digital and the use of AI for efficient staffing, is expected to improve operating margins and lower expenses, impacting net margins positively.
  
• Continued development and acquisition activity, supported by a robust pipeline and strong balance sheet, are positioned to enhance long-term NOI through strategic portfolio growth, directly impacting future earnings.
  
• Even with potential economic headwinds, the self-storage industry is viewed as resilient, with Public Storage well-positioned to capitalize on rising demand for affordable space solutions, which is expected to support stable revenue and potentially offset macroeconomic volatility.

Public Storage Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Public Storage's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 37.4% today to 38.3% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $11.64) by about May 2028, up from $1.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.3x on those 2028 earnings, up from 29.5x today. This future PE is greater than the current PE for the US Specialized REITs industry at 29.5x.
• Analysts expect the number of shares outstanding to decline by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.68%, as per the Simply Wall St company report.

Public Storage Future Earnings Per Share Growth

Risks

• Move-in rents have declined significantly due to softening demand and competitive market behavior, potentially impacting future revenue growth.
  
• Revenue growth has been constrained by fire-related pricing restrictions in Los Angeles, which is anticipated to have an overall 100 basis point negative impact on same-store revenue growth for the year.
  
• Industry-wide development activity is decreasing, and rising costs for land, labor, and materials could challenge the company's ability to maintain its pace of development starts and deliveries, likely impacting longer-term revenue and growth opportunities.
  
• Acquisition transaction volumes remain light, indicating potential difficulties in achieving targeted growth through acquisitions, which could impact revenue projections.
  
• There is ongoing volatility and uncertainty in the capital markets and trade policy environment, which could lead to fluctuations in consumer demand and behavior, impacting revenue and earnings.

Valuation

• The analysts have a consensus price target of $330.0 for Public Storage based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $378.0, and the most bearish reporting a price target of just $287.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.3 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 34.3x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $297.98, the analyst price target of $330.0 is 9.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.