Most storage units are full of junk. But Wall Street believes Public Storage might be sitting on some treasure.
Analysts from New York finance behemoths Citigroup Inc. and Goldman Sachs Group Inc. recently upgraded their ratings on the Glendale self-storage giant, giving its stock a healthy boost.
Shares of Public Storage rose nearly 6 percent during the week ended Jan. 7 to close at $195.24, a 52-week high. The company was one of the biggest gainers on the LABJ Stock Index. (See Page 40.)
While a modest gain of less than 6 percent usually isn’t enough to put a company in the Top 10 gainers, a brutal week on the stock market vaulted Public Storage into that position.
A team of analysts at New York investment bank JPMorgan Chase & Co. helmed by Michael Mueller said they moved their position to overweight “largely based on its balance sheet strength, acquisition potential and the property type’s leverage to an economic rebound” in a Dec. 19 research note.
As of Oct. 30, Public Storage had spent about $337 million to purchase 35 self-storage facilities – 20 of which were in Florida, the rest spread across the country – last year. On a Nov. 3 conference call recapping the company’s third-quarter earnings, Chief Executive Ron Havner said he expected to “take down about $400 million-plus of acquisitions this year.”
Public Storage declined to comment for this article, citing the quiet period before the company releases its fourth-quarter earnings later this month.
Ki Bin Kim, an analyst at the New York office of Atlanta investment bank SunTrust Robinson Humphrey, kept a “neutral” rating on the stock but said he was very bullish on the self-storage industry in general.
He said the “neutral” rating was more to distinguish Public Storage from competitors such as CubeSmart and Sovran Self Storage Inc., whose stocks he prefers.
The major reason Kim is less enthusiastic about Public Storage compared with some of its competitors is that as the biggest player – by far – in the industry, it has to deal with the “law of large numbers.”
“It’s the problem you face when you become so big,” he said. “It’s hard to move the growth needle. You need to do a lot more to move your earnings per share when you’re so big.”
Public Storage, the country’s largest self-storage provider, was founded by B. Wayne Hughes Sr. in 1972. His children, Tamara Hughes Gustavson and B. Wayne Hughes Jr., remain the two largest individual shareholders in the company. They are also two of the richest people in Los Angeles, with Gustavson ranking No. 15 on the Business Journal’s most recent list of Wealthiest Angelenos, with an estimated net worth of $3.7 billion, and the younger Hughes at No. 33, with assets of $1.5 billion.
The senior Hughes, now 81 and living in Lexington, Ky., is also the founder and non-executive chairman of Agoura Hills’ American Homes 4 Rent, which went public last year.
