Expanding Customer Base And Decisive Investments Propel Revenue And EPS Growth

Key Takeaways

• Strategic investments in marketing and expansion, alongside positive occupancy trends, suggest robust revenue and earnings growth potential.
  
• Reduced competitive pressure due to slowing development of new supply may bolster occupancy and rental rates, supporting long-term revenue growth.
  
• Facing competitive market pressures with decreasing move-in rents and core FFO per share, alongside rising operational costs, could challenge profitability and revenue growth.

Catalysts

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

• Occupancy trends exceeding expectations with positive net move-ins year-to-date indicate a strong customer base with good payment patterns, likely to support stable revenue growth.
  
• High growth in non-same-store facilities, with 542 properties seeing nearly 50% NOI growth in Q2, suggests significant future revenue contributions as these properties continue to lease up.
  
• Waning development of new competitive supply is expected to lessen market pressure and support stronger occupancy and rental rates, potentially leading to revenue growth.
  
• Strategic share repurchases, indicating management confidence in the intrinsic value of the company, may contribute to EPS growth through reduced share count.
  
• Increased marketing and customer acquisition strategies, despite more competitive move-in rent conditions, suggest the company is investing in growth avenues that could enhance future earnings and revenue.

Assumptions

• Analysts are assuming Public Storage's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 40.4% today to 39.7% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $12.0) by about September 2027, up from $1.9 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.3x on those 2027 earnings, up from 33.2x today. This future PE is greater than the current PE for the US Specialized REITs industry at 29.7x.
• Analysts expect the number of shares outstanding to decline by 0.46% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 5.91%, as per the Simply Wall St company report.

Risks

• Move-in rents were down significantly, indicating a more competitive market which could impact future revenue growth.
  
• A decrease in core FFO per share year-over-year suggests potential challenges in maintaining profitability levels, potentially affecting earnings.
  
• Increased operational costs, despite strategic initiatives to reduce expenses, suggest rising cost pressures that could impact net margins.
  
• Revised guidance reflecting lower move-in rents during peak season points to challenges in driving revenue growth, potentially affecting future earnings.
  
• Heavy reliance on move-in rates and the competitive dynamics in various markets indicate a risk to sustaining occupancy levels and rent growth, potentially affecting revenue and net margins.

Valuation

• The analysts have a consensus price target of $341.44 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 $422.0, and the most bearish reporting a price target of just $250.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.3 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 33.3x, assuming you use a discount rate of 5.9%.
• Given the current share price of $356.64, the analyst's price target of $341.44 is 4.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.