REIT Stocks

Public Storage Valuation – July 2016 $PSA

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Public Storage (PSA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Public Storage is a real estate investment trust. The Company’s business activities include the ownership and operation of self-storage facilities, which offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities, such as merchandise sales and tenant reinsurance to the tenants at its self-storage facilities, as well as the acquisition and development of additional self-storage space. It operates through Self-Storage Operations, Ancillary Operations, Investment in PS Business Parks, Inc. (PSB) and Investment in Shurgard Europe segments. It also has direct and indirect equity interests in over 30 million net rentable square feet of commercial space located in over nine states in the United States primarily owned and operated by PSB under the PS Business Parks name. It manages approximately 30 self-storage facilities for third parties, and has equity interests in and manages over 12 additional self-storage facilities.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PSA – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $44,163,108,239 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 136.35% Pass
6. Moderate PEmg Ratio PEmg < 20 37.56 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.88 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 11.03 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PSA value chart July 2016

EPSmg $6.76
MG Growth Estimate 14.94%
MG Value $259.54
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $98.08
MG Value based on 0% Growth $57.49
Market Implied Growth Rate 14.53%
Current Price $254.07
% of Intrinsic Value 97.89%

Public Storage does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.39 in 2012 to an estimated $6.76 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 14.53% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Public Storage scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

PSA charts July 2016

Net Current Asset Value (NCAV) -$4.08
Graham Number $79.33
PEmg 37.56
Current Ratio 1.11
PB Ratio 4.88
Current Dividend $6.80
Dividend Yield 2.68%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $305,705,000
Total Current Liabilities $275,170,000
Long-Term Debt $336,664,000
Total Assets $10,064,347,000
Intangible Assets $212,506,000
Total Liabilities $1,015,581,000
Shares Outstanding (Diluted Average) 173,850,000

Earnings Per Share History

Next Fiscal Year Estimate $9.55
Dec2015 $6.07
Dec2014 $5.25
Dec2013 $4.89
Dec2012 $3.90
Dec2011 $3.29
Dec2010 $2.35
Dec2009 $3.47
Dec2008 $4.19
Dec2007 $1.17
Dec2006 $0.33
Dec2005 $1.97
Dec2004 $1.38
Dec2003 $1.28
Dec2002 $1.19
Dec2001 $1.51
Dec2000 $1.41
Dec1999 $1.52
Dec1998 $1.30
Dec1997 $0.91
Dec1996 $1.10

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.76
Dec2015 $5.14
Dec2014 $4.43
Dec2013 $3.87
Dec2012 $3.39
Dec2011 $3.05
Dec2010 $2.72
Dec2009 $2.68
Dec2008 $2.13
Dec2007 $1.14
Dec2006 $1.16
Dec2005 $1.54
Dec2004 $1.33
Dec2003 $1.34
Dec2002 $1.37
Dec2001 $1.42
Dec2000 $1.33

Recommended Reading:

Other ModernGraham posts about the company

24 Companies in the Spotlight This Week – 3/28/15
Public Storage Annual Valuation – 2015 $PSA
17 Companies in the Spotlight This Week – 3/22/14
Public Storage Inc. (PSA) Annual Valuation – 2014
10 Companies in the Spotlight This Week – 12/21/13

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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