Increased competition from local, regional and private warehouses alongside the current trend appear to suggest that Public Storage's (PSA, Financial) stock price could hit $200 before rebounding. This trajectory has not stopped the equity research company, Zacks, from tipping the company’s stock to hit $289 mark in the coming fiscal year.
This could be due to top and bottom line growth reported by Public Storage in the last three fiscal years. And, with an average brokerage recommendation of 3, Public Storage appears to boast an attractive investment opportunity for speculators while also presenting an equal weight (Hold) juncture for long-term investors.
The Rivalry
Necessity was coined to be the mother of invention, but so is competition. Competition fuels companies to continue inventing and reinventing while still remaining inclusive in the market. Be it investing in the next big thing or finding an untapped niche, businesses have to somehow figure out ways of competing while still staying relevant in the market.
Public Storage is no stranger to rivalry, both locally and internationally, and is currently facing stiff competition from numerous private, regional and local operators. This has seen companies like Extra Space Storage (EXR, Financial) and Ascendas Real Estate Investment Trust (SGX:A17U, Financial) both present an interesting option for investors with dividend yields of 3.6% and 4.0%, respectively. This is slightly higher than Public Storage’s dividend yield of 3.35%, which is still very competitive in the market.
In addition, Public Storage also faces an unfamiliar threat of localized companies that provide unique services to customers. The warehouse storage market is highly fragmented and this presents opportunities for smaller players to stake their claim of the industry.
According to David Malott, a senior account manager at Holloway Storage, a warehouse storage service firm based in Sydney, Australia, customers are choosing their storage service providers with a great degree of care to get the best value for their money. They seem to be going for specific services rather than a blanket offer, which may include services they do not need.
Furthermore, the recent rumbles in the European market have limited Public Storage’s ability to grow its business globally. This is compounded by the intense competition provided by local players. The company is also facing some increases in operational risk and rising construction costs through the significant developments it is currently undertaking such as refurbishment of pipelines.
The Dive Is Not Over Yet
Having closed at $259.74 on July 5, a little more than 2 months later, Public Storage has since taken a nose dive to close at $215.10 on Sept. 14, a trend that is forecasted by many to continue way below the $210 mark. Such trajectory will provide bearish investors with investment opportunity before the rebound. This might explain why, despite the downward trajectory in stock price, Public Storage is still being viewed by some as an attractive form of investment.
Is It Still Worth It?
Based on recent results, Public Storage is still very strong and well placed to experience growth going forward. This is mainly because of the company’s strong brand image and its gigantic market share compared to rivals. A rise in occupancy levels and realized annual rent per square foot has also seen the company’s margins continue to grow.
Being one of the higher priced Real Estate Investment Trusts (REITs), the company still stands out by rallying in its funds from operations (FFO). This number has continued to grow over the years, giving Public Storage its mobility to remain competitive in the market. For instance, the company recorded a FFO of $8.79 per diluted share in 2015, an improvement from the previous year’s FFO of $7.98. With these kinds of figures reported year on year, and with this year’s FFO expected to be an improvement on the previous year's FFO, it is no surprise investors are keeping a close eye on the stock.
Conclusion
Public Storage might still hit the projected price mark of $200, which will offer a very attractive investment opportunity. At the current price of $215, the stock’s valuation is still attractive for investment and with the company having built a reputation as a constant dividend grower, it is expected to continue doing so in the foreseeable future. This could be the right time to buy Public Storage stock, but more cautious investors may choose to wait for it to drop further.
Disclosure: I have no position in any stock mentioned in this article.
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