Self-Storage And U-Box Expansion Expected To Drive Future Performance

Key Takeaways

• Expanding self-storage and investing in U-Box infrastructure could drive future revenue growth and enhance margins.
  
• Lowering costs through a new supplier is expected to improve net margins over time.
  
• Uncertainty with EV mandates, modest rental income growth, overexpansion in self-storage, rising expenses, and declining resale values threaten U-Haul's net margins and earnings.

Catalysts

Operates as a do-it-yourself moving and storage operator for household and commercial goods in the United States and Canada.

• U-Haul is increasing its capital expenditures for rental equipment and expects improved availability from manufacturers, which could support future rental revenue growth. This suggests an anticipated positive impact on revenue.
  
• The company has reported its second consecutive quarter of improved equipment rental revenue. If this trend continues, it might indicate a return to a more sustained growth trajectory, positively affecting earnings.
  
• U-Haul is aggressively expanding its self-storage portfolio, with 8.1 million square feet under development. This expansion is expected to drive future revenue growth once the new capacity is filled.
  
• The U-Box service has shown significant infrastructure investment and is expected to contribute to growth in transactions, potentially enhancing revenue and margin profiles as it scales.
  
• The transition to a new cardboard box supplier is anticipated to lower the cost of goods sold over time, suggesting a future improvement in net margins.

U-Haul Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming U-Haul Holding's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 12.2% in 3 years time.
• Analysts expect earnings to reach $747.6 million (and earnings per share of $4.12) by about January 2028, up from $480.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.3x on those 2028 earnings, down from 29.7x today. This future PE is lower than the current PE for the US Transportation industry at 29.9x.
• Analysts expect the number of shares outstanding to decline by 2.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.74%, as per the Simply Wall St company report.

U-Haul Holding Future Earnings Per Share Growth

Risks

• The uncertainty surrounding the impact of new EV mandates on U-Haul's strategy and capital expenditures could lead to volatility in vehicle acquisition costs, affecting net margins and overall earnings.
  
• Modest increases in rental income and the inability to achieve significant growth in one-way moving transactions suggest potential stagnation in a key revenue segment, which could hinder future revenue growth.
  
• Overexpansion in self-storage facilities, as evidenced by adding rooms faster than filling them, could lead to high operational costs and lower occupancy rates, negatively impacting net margins and earnings.
  
• Increased operating expenses, including $55 million for fleet maintenance and personnel costs, may pressure net margins if revenue growth does not outpace cost increases.
  
• Declining resale values for retired rental equipment leading to increased depreciation may pressure net income, reducing the profitability of asset sales.

Valuation

• The analysts have a consensus price target of $90.26 for U-Haul Holding 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 $120.0, and the most bearish reporting a price target of just $73.69.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.1 billion, earnings will come to $747.6 million, and it would be trading on a PE ratio of 27.3x, assuming you use a discount rate of 7.7%.
• Given the current share price of $72.81, the analyst's price target of $90.26 is 19.3% 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.