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.
[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.
[/level-free]
[not-level-free]
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
| 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
| 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 |
[/not-level-free]
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
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
Other ModernGraham posts about related companies
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.
