New Buffett-Munger Company Owns U-Haul

Many investors looking for quality companies at a reasonable cost turn to the Buffett-Munger screener on GuruFocus. Essentially, it provides a list of companies with high predictability scores, competitive advantages, relatively little debt and under or fair valuation (as measured by its PEPG or PEG ratio).

Amerco Inc. (UHAL, Financial), the company that owns the U-Haul brand and operations, is the latest addition to this exclusive club; at the moment, it has only 46 companies.

About Amerco

The company calls itself North America’s largest “do-it-yourself” moving and storage operator.

U-Haul began operations as a trailer-rental company in 1945. Expansion into trucks began in 1959 and it started operating its own retail outlets in 1973. The latter provides space for renting trucks and trailers, self-storage units and the sale of products such as moving boxes. This subsidiary accounted for 94% of consolidated net revenue in 2022.

In its earnings release for the most recent fiscal year, which ended on March 31, it reported a fleet comprising approximately 186,000 trucks, 128,000 trailers and 46,000 towing devices.

It is also the third-largest self-storage company in North America, with 876,000 rentable storage units and 75.1 million square feet of self-storage space at owned and managed facilities.

In addition, it reported itself as the largest retailer of propane in the U.S., and continues to be the largest installer of permanent trailer hitches in the automotive aftermarket industry.

Other subsidiaries are the Repwest Insurance Company and ARCOA Risk Retention Group, its property and casualty insurance subsidiaries, through which it provides coverage for U-Haul’s claims. In addition, it operates Oxford Life Insurance Company, which, as the name suggests, sells life insurance, Medicare supplement insurance, annuities and other related products to the senior market.

Competition

According to its 10-K for the year ended March 31, 2022, the company considers there to be two major segments in the truck rental industry. One is commercial; the other is “do-it-yourself” residential.

Amerco plants itself solidly in the latter camp. It noted, “We primarily focus on the ‘do-it-yourself’ residential user. Within this segment, we believe the principal competitive factors are convenience of rental locations, availability of quality rental moving equipment, breadth of essential products and services, and total cost to the user.”

It named Avis Budget Group Inc. (CAR, Financial) and Penske Truck Leasing (PAG, Financial) as its main national competitors in both the in-town and one-way moving markets.

For the self-storage market, it named Public Storage Inc. (PSA, Financial), Extra Space Storage, Inc. (EXR, Financial), CubeSmart (CUBE, Financial) and Life Storage, Inc. (LSI, Financial) as its major competitors.

Performance

Until July 2021, Amerco had outperformed its truck rental rivals, Avis Budget and Penske:

Predictability

GuruFocus predictability scores are based on the consistency of revenue per share and Ebitda per share over the past 10 years. We can see Amerco’s generally steady growth of both measures in this chart:

Amerco currently has an overall predictability score of 4.5 out of five stars, which puts it near the top.

Competitive advantages

Few corporate logos are as well-known as U-Haul’s, giving it a significant moat in its moving and storage segment.

Scanning headlines about the company, we frequently see stories about it offering free storage to the victims of local disasters. It’s the sort of public service that wins loyalty and new customers.

One test to see if a company has significant moats is to check its profitability scores. By those measures, Amerco has exceptional competitive advantages:

Of course, we can also look at that relationship in the opposite direction: moats make it possible to have above-average margins and profitability.

It also has an advantage in its scale. As the largest company in its markets, it is well-positioned for awareness among its target audience of do-it-yourself movers. Just as Kleenex has become an alternative noun for tissues, U-Haul is an alternative name for moving trucks.

Debt

The third criterion for Buffett-Munger status is limiting the amount of debt incurred as the company grows. But, as this chart of debt and cash shows, debt is rising and higher than cash levels:

In looking at its debt, we should remember Amerco is a capital-intensive business. As we saw above, it owns a massive fleet of trucks and trailers, self-storage facilities and more. All of that requires significant amounts of capital, and it has to invest that capital before collecting revenues.

Concerned investors might take some comfort in knowing the company makes occasional dividend payments (but not regular payments). Most recently, it paid a special cash dividend of 50 cents per common share on April 29. The company’s directors obviously think they have no interest payment or debt repayment challenges.

Valuation

The fourth and final criterion is that the stock price needs to be fairly valued or undervalued, as measured by PEPG or PEG. Two names for the same ratio, each calculated by dividing a company’s price-earnings ratio by average Ebitda over the previous five years.

Amerco has a current price-earnings ratoi of 8.58, a five-year Ebitda average of 11.70% and a PEG ratio of 0.73. Whenever the Ebitda average is greater than the price-earnings, you can expect an undervalued stock.

And as this 10-year chart shows, the company became undervalued because its stock lost roughly 30% of its value since early November:

Why is the stock price down? Chairman Joe Shoen noted some of the headwinds in the earnings report release for fiscal 2022:

“We are now in less certain times with significant inflation, large gas price increases and disruptions with nearly every significant supplier. Many companies are experiencing this. This is not particularly unique. We will just have to work through this. We are focused on our customer.”

One more metric

While the Buffett-Munger screener doesn’t require any more metrics, one that helps confirm Amerco’s desirability is the GF Score. Stocks with a score of 80 or more are considered the best candidates for investment. Amerco receives a score of 95 out of 100:

Conclusion

Amerco meets all four criteria for a Buffett-Munger stock and meets them comfortably. It has a high predictability rating, indicating investors can expect more of the same in coming years. It has competitive advantages that back up that predictability and ensure continued profitability. While it does have debt, it is manageable.

The stock’s recent entry onto the Buffett-Munger list was made possible by the sliding share price, which reduced the price-earnings ratio to the point the PEG ratio shifted to undervalued.

Amerco is a stock that may interest growth investors who want a steady performer with only a modest amount of risk. It will not find a place in the portfolios of value and income investors.