In August, Amerco (UHAL, Financial) reported first quarter earnings per share of $7.51, missing estimates by $1.21, and revenue of $923.41 million, missing estimates by $17.91 million, despite being up 4.4% year-over-year. This is the catalyst that sent the stock down over 15%.
However, for long term investors, the stock has been a boring market crusher. In the last decade, revenue rose 58%, net income grew 410%, EPS 537% and book value increased by 189%. All this contributed to a 344% rise in share price versus the S&P 500’s 65% gain.
The Amerco story
The story of U-Haul is not uncommon, even today. Discharged from the Navy in the summer of 1945, 29-year-old Sam Shoen and his wife Anna Mary tried to rent a utility trailer to move their possessions from Los Angeles to Portland, Oregon. It couldn't be done. Thus, the saying “there has to be a better way” must have been muttered and out of a sense of need, the two launched the company, renting locally for $2 per day.
By the end of 1959, the company’s fleet consisted of 42,600 trailers. Today, its rental fleet consists of approximately 139,000 trucks, 108,000 trailers and 38,000 towing devices. It has 1,360 self-storage locations with 536,000 rentable rooms. Throw in sales of moving supplies, towing accessories and propane to get one rock solid business. In fact, I recently helped to move a family member from one house to another using a U-Haul and was pleasantly surprised by the professionalism on both the franchise and corporate side of the business. While the rise in services like College Hunks and Two Dudes and a Truck has put a slight dent in what could have been a monopolistic stronghold, U-Haul continues to have a durable competitive advantage.
Risk Reward
What is amazing about Amerco, from a financial standpoint, is that even though the revenue has not increased that much (58% since 2005), because the company was able to expand its gross margins, the EPS has exploded - up over 537% in the last decade to $23.72.
Using a straight line growth valuation for Amerco, based on the last 10 years, you get a pretty solid future price estimate over $1,000 per share. Even the DCF calculation yields a 52% margin of safety right now. The business itself has a solid economic moat, as the low-cost producer, ubiquitous brand and high barrier to entry for competition.
The risks involved are not so much the question of “will I make money long term,” but whether Amerco will produce better than market rates of interest. I think it is worth placing a small portion of assets behind the stock if you are open to diversifying. While I don’t think this will be a 15% annual grower, the stock will likely outperform the market over the next 3, 5, 10 and 20 years. The reason is simple: people move, in good times and bad, U-Haul is the name they trust, and the numbers support continued ability to grow earnings while keeping the dominant position in the market.
Disclosure: I do not have a position in UHAL.
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