Investors are crazy for companies with competitive moats, and Amerco has one of the widest.
The company owns U-Haul, the leading do-it-yourself mover, and a fast-growing self-storage business. Amerco (ticker: UHAL) is also one of the better-kept secrets in the stock market. That’s because it has virtually no analyst coverage, communicates little with investors, and is run like a private business by the controlling Shoen family, which owns about half of the stock.
Its shares, trading at $380, look appealing after having been stuck in a range of $325 to $400 for most of the past four years.
U-Haul is one of the original network-effect businesses, with 21,000 locations. Yet investors are giving Amerco little credit for its self-storage business, even as Americans seem to have an insatiable need to store more stuff. Pure-play self-storage companies like industry leader Public Storage (PSA), as well as CubeSmart (CUBE) and Life Storage (LSI), have been rewarded with high valuations.
“Amerco is crazy cheap,” says Steve Galbraith, chief investment officer at Kindred Capital Advisors in Norwalk, Conn., a holder of the shares. “The stock is worth more than $500 a share.”
The stock could require some patience. Management is uninterested in breaking up the company, and family control precludes activist involvement. Still, it is the kind of business that would probably appeal to Berkshire Hathaway (BRK.B) CEO Warren Buffett if the Shoen family ever decides to sell. Amerco has a digestible market value of $7.4 billion, plus net debt of about $3.8 billion.
Amerco / UHAL
Note: Fiscal year ends in March. E=estimate
Amerco’s boss of the past 32 years, the 70-year-old Edward “Joe” Shoen doesn’t have the CEO title. He’s president and chairman. He’s thrifty, a man of relatively few words, and paid modestly by current CEO standards—just $1 million annually—with four other top executives earning a combined $2 million. The company’s dividend is low, at less than 1%, and it doesn’t buy back stock.
Galbraith and other investors give Shoen high marks for solidifying the company’s dominant position in do-it-yourself moving and for building out the storage business.
In 2017, the company moved to profit off its most valuable rental location, selling part of a large parcel on Manhattan’s far West Side—for a nearly $200 million gain—to an apartment-tower developer. The carrying value of the long-held property on 23rd Street and 11th Avenue was just $5 million.
Barron’s wrote favorably about the company three years ago (“U-Haul Parent Amerco: Ready to Move,” Oct. 22, 2016). The stock is up 15% since then, trailing the overall market.
While Amerco pays a low dividend, it does offer investors the opportunity to buy debt securities backed by a corporate guarantee and specific equipment—including trucks and even utility dollies—through the U-Haul Investors Club. The yields on these U-Haul notes range from 3% on two-year securities to 6.5% on 30-year ones, and the investment minimum is just $100. There is $80 million of this debt outstanding—including more than $20 million from the Shoen family. One negative is a lack of liquidity. Investors should be prepared to hold the debt until maturity.
Amerco isn’t cheap, trading for almost 20 times earnings in its fiscal year ended in March. Profits for the June quarter were $6.76 a share, up from $6.53 a year earlier. Earnings for the current year are expected to be $20 a share, up 5% from the $18.93 in the previous fiscal year. Earnings peaked at $25 in the company’s fiscal 2016.
The profit decline reflects weaker margins, as the company refreshed and expanded its truck rental fleet, which now includes 167,000 vehicles, leading to higher depreciation expense. And the rapid build-out of the self-storage business has penalized earnings because of low initial occupancy.
Asked about flat earnings over the past five years at the company’s annual investor and analyst day, conducted online in August, Shoen said that profits in the next five are “almost certain to improve,” citing higher rental fleet use, the completion of self-storage facilities, and higher occupancy, now under 70%, against an industry average of more than 90%. “We’re starting to get to the point when the curve is starting to bend, and that should result in earnings improvement,” says Jason Berg, Amerco’s chief financial officer.
Amerco owns 38 million square feet of self-storage space and at least 14 million more square feet in development. Storage revenue totaled $367 million in the latest fiscal year and could nearly double as occupancy rises and new properties are completed, Berg said at the investor day.
With public peers valued at more than 10 times revenue, the self-storage business could be worth $6 billion, given its growth prospects. Investors effectively are paying little for the self-moving business, Galbraith says.
He adds that annual earnings can hit $30 a share in the next two or three years, as operating margins, which ran at 15% in the latest fiscal year, top 20%—still below the peak of about 24% hit in fiscal 2016. He points out that revenue from self-moving has risen at a 6.4% annualized rate in the past 10 years and 7% in the past 12 months. Self-storage revenue has climbed at a 15% yearly clip in the past five years.
As long as the U.S. remains a mobile society, and Americans want more space to store their stuff, Amerco is likely to prosper. Investors should consider acquiring the stock before its price moves up.
Write to Andrew Bary at firstname.lastname@example.org
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