Truist maintains Public Storage rating, holds $316 target

Tuesday, Truist Securities reiterated a Hold rating on Public Storage (NYSE:PSA) shares with a steady price target of $316.00. The prominent player in the Specialized REITs industry, currently valued at $53.2 billion, maintains strong financial health with an InvestingPro Overall Score of 3.15/5. The decision came after considering the impact of Los Angeles wildfire rent moratoriums on the company’s financial outlook. Public Storage reported a fourth-quarter 2024 funds from operations (FFO) per share of $4.21, slightly missing the consensus estimate of $4.24 by 0.7% and Truist’s own estimate of $4.23 by 0.5%. The company maintains a solid financial foundation with a moderate debt level and impressive gross profit margins of 73.4%. According to InvestingPro analysis, three analysts have recently revised their earnings expectations downward for the upcoming period.

Looking ahead, Public Storage has set its FY25 FFO per share guidance at $16.675, which falls short of the Street’s expectation of $17.17 per share by 2.9% and Truist’s estimate of $17.16 per share by 2.8%. The analysts at Truist attribute approximately $0.23 per share of this shortfall to the rent moratoriums in Los Angeles. These moratoriums are anticipated to have a greater effect on existing customer rent increases (ECRIs) compared to the economics of renting to new tenants, posing headwinds for the fiscal year 2025.

The company’s forecast for 2025 includes same-store revenue (SSREV) growth of -0.25%, which would have been 0.75% without the impact of LA rent control. Same-store expenses (SSEXP) are predicted to rise by 3.25%, and same-store net operating income (SSNOI) is projected to decrease by 1.35%, which would be nearly flat without the Los Angeles influence. Despite these challenges, Public Storage has maintained dividend payments for 44 consecutive years, currently offering a 4% yield. The commentary from Truist Securities suggested that flat year-over-year SSNOI growth could have been viewed positively if considered in isolation, given the backdrop of years of market rent declines excluding the LA impact.

However, the guidance still represents a miss compared to consensus expectations, even if the $0.23 per share impact from the LA rent moratorium is added back. Based on InvestingPro’s Fair Value analysis, the stock appears overvalued at current levels. Truist Securities concluded that due to the extent of the miss, Public Storage shares are likely to mildly underperform in the following trading session. For deeper insights into PSA’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, along with 7 additional ProTips and extensive financial metrics.

In other recent news, RBC Capital has adjusted its price target for Public Storage, lowering it from $344 to $342 while maintaining a Sector Perform rating. The analyst from RBC Capital noted that Public Storage, despite being the largest owner of storage assets in the U.S., has experienced slower growth compared to its peers. This slower growth has been partly attributed to competitors recovering from lower occupancy rates and pricing. The analyst also pointed out missed opportunities in expanding Public Storage’s third-party management and insurance businesses, which have been significant growth drivers for other companies. Although Public Storage is now focusing more on these areas, RBC Capital expects it will take several years for them to significantly impact growth. The firm’s unique development business was acknowledged, but it was noted that it is too small to substantially affect overall performance. Public Storage’s strong balance sheet was highlighted as a positive aspect. However, the valuation of the company was deemed fair, indicating that the current stock price reflects its assets and future earnings potential.

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