Haul in Some Profits With Amerco

Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Along with the recovery of the automobile manufacturing industry that has taken place over the past few years, vehicle rental companies have also been delivering a solid performance. While this has left some stocks trading at high multiples, there are still a number of enticing bargains to be found in the industry. Often overlooked by investors, this segment appears able to deliver strong growth as well as solid value. One of these attractively priced rental companies is Amerco (NASDAQ: UHAL). In this article I will outline a basic investment thesis for this firm.

Company Overview

Amerco provides DIY moving and storage solutions through its subsidiary U-Haul International. The company rents out trucks, trailers, portable storage boxes and self-storage spaces among other offerings. The stock has a $2.54 billion market cap and has around 7,600 full-time employees. It has had an impressive run-up in the last year gaining almost 40%, but does not yet appear overvalued. With a beta of 1.15 the stock is slightly more volatile than the overall market, and it does not as of yet offer a dividend.

Earnings

2012 was an excellent year for Amerco with earnings beats across the board. The biggest surprise beat was in Q4 with a 330% surprise according to CNBC, although the consensus estimate appeared rather conservative at $0.30. In the Q2 fiscal 2013 report, Amerco announced earnings of $5.61 per share, compared to $5.20 over the same period last year, and beating the street by $0.10. The moving and self-storage segment continued to put up strong results according to management, with moving equipment revenues up $26.7 million and self-storage revenue was up $4 million compared to the same period a year ago.

As mentioned earlier, 2012 has been a good year for the rental industry in general. Avis Budget (NASDAQ: CAR), who competes with Amerco in the truck rental segment, has experienced a massive rally in the last 12 months tacking on nearly 95% to its stock price. The vehicle rental company, who recently snapped up Zipcar in an effort to expand into the car-sharing market, has also been delivering encouraging earnings throughout most of 2012.

Valuations and Metrics

Amerco currently trades at 9.4x earnings, according to Yahoo a significant discount to the 15.38x rental industry average. The price to book and price to sales are also quite fair at 1.83 and 0.99 respectively. The operating margin is an impressive 16.84% and the return on equity is also good at 19.28%. The company does have a fairly large amount of debt though with a total debt to equity ratio of around 130. Avis Budget trades at a slightly higher 13.97x earnings and 2.92 to book. Also, the operating margin is slightly lower and the company somehow managed to rack up nearly $11 billion in debt, which is nearly equal to their enterprise value.

Bottom Line

The rental industry has witnessed a huge rally over the last twelve months, but the industry valuations as a whole are still quite reasonable compared to the broader market. Amerco is delivering strong growth and should be able to continue this impressive performance throughout 2013 according to management. It is also cheap compared to the industry as well as the broader market, making it an interesting choice for growth as well as value investors. 


DUJames has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus