Is This A Company Investors Should Store Their Money In?
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to focus on a REIT that is a trailblazer in the storage facility industry: Public Storage (NYSE: PSA).
Warren Buffett once said, “Never invest in a business you can’t understand.” This not only allows the investor to purchase a company with conviction, but also allows them to spot trends blind to unfamiliar eyes. With this in mind, investors in any company should fully understand the business model of the company. Public Storage is a real estate investment trust that invests in self-storage facilities and offers them for lease. The company operates throughout the United States, the United Kingdom, France, Belgium, Germany, Sweden, Denmark, and the Netherlands. As of the end of 2011, the company possessed 2,349 total locations with 168,051,000 rentable square feet. Based on market capitalization, Public Storage is valued at $25.96 billion. Because of the company’s efficient business model, their profit margin is 42.81%.
- Institutional Vote of Confidence: 76.93% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
- Dividend: Currently, Public Storage pays out quarterly dividends of $1.10, which when annualized puts the dividend as yielding 2.91%
- Steady Revenue Growth: In 2006, Public Storage reported revenue of $1.38 billion; in 2011, the company announced revenue of $1.60 billion, representing year over year annual growth of 3.00%, a steady trend that is anticipated to continue into the future, with projections placing 2016 revenue at $1.87 billion
- Relatively Low Volatility: Presently, Public Storage holds a beta ratio of 0.93, representing a company trading with less volatility than the overall market, a major upside for long-term investors
- Diversified Property Portfolio: As of the end of 2011, the company possessed 2,349 total properties with 168,051,000 total net rentable square feet, with properties stretching across the United States and several countries in Europe, and with this diversified property portfolio comes a greater level of security and predictability for investors
- Free Cash Flow Position: As of the company’s latest quarterly report, Public Storage possesses a positive free cash flow position of $327.99 million, allowing the company to reward investors and reinvest in their own business
- Streamlining of Business: Total expenses have decreased from $1.37 billion in 2007 to only $978 million currently, representing a streamlining of the business that has not confiscated revenue growth
- Net Positive Cash Position: The company’s debt load of $30.40 million is outweighed by the company’s $535.75 million worth of cash and cash equivalents, representing a slight net positive cash position
- Slightly High Valuation: Currently, Public Storage carries a price earnings ratio of 42.48, a price to book ratio of 4.97, and a price to sales ratio of 14.82, all of which indicates a company trading with a slightly high valuation. However some of this valuation is compensated through the company’s extreme predictability and diversification
- Concentration in US: 91.95% of the company’s total properties are located in the United States, and this extreme concentration in the US could prove to be a major weakness
- Dividend Growth: Since implementing their dividend program in 1981, Public Storage has consistently raised their dividend payouts and should continue to do so well into the future
- Expansion: In 2011, $69 million was derived from newly acquired or redeveloped properties in the United States, and $22 million was derived from newly acquired or developed properties in Europe, and further expansion plans could offer incredible opportunity to the company
- Increasing Occupancy Rate: Public Storage possessed an occupancy rate in its United States business segment in 2011 over 91%, and in the company’s European segment an occupancy rate of 83.9%; any improvement in the company’s occupancy rate could result in sales growth
- Sluggishness in Consumer Confidence: When consumer confidence lags, they do not spend as much money and do not acquire as many excessive products, leading to less demand for storage facilities, posing a threat to Public Storage
Major publicly traded competitors of Public Storage include Simon Property Group Incorporated (NYSE: SPG), HCP Incorporated (NYSE: HCP), Ventas Incorporated (NYSE: VTR), and Equity Residential (NYSE: EQR). These companies do not compete directly against Public Storage, but are all real estate investment trusts and invest in their own distinct breed of property. Simon Property Group is valued at $49.55 billion, pays out a dividend yielding 2.88%, and carries a price earnings ratio of 33.47. HCP is valued at $21.67 billion, pays out a dividend yielding 4.39%, and carries a price earnings ratio of 25.67. Ventas is valued at $20.28 billion, pays out a dividend yielding 3.57%, and carries a price earnings ratio of 67.19. Equity Residential is valued at $18.69 billion, pays out a dividend yielding 5.34%, and carries a price earnings ratio of 71.56.
The Foolish Bottom Line:
Financially, Public Storage is as solid as a rock. The company possesses steady revenue growth, a double digit profit margin, and a rapidly growing dividend. The only true weakness of the business is its high valuation, but this is compensated for through the company’s extreme predictability and security. All in all, Public Storage is an incredibly stable investment that should hand investors solid returns for as long as there is a demand for storage facilities.
makinmoney2424 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!