It’s not often you get two stock recommendations within hours of each other that are polar opposites.
But that happened the morning of June 28. Motley Fool put out an article headlined “Two Great Stocks You Can Buy and Hold Forever,” with one of those great stocks being Public Storage, the self-storage giant headquartered in Glendale. Less than two hours later, an analyst writing for Seeking Alpha posted his article headlined, “Public Storage Is Dangerously Overvalued.”
Since Public Storage is the third-biggest public company by market capitalization in our Valley area, let’s take a look at these dueling opinions, starting with the glowing one.
Matthew Frankel likes the fact that Public Storage has generated “fantastic returns” over time. “In fact, since 1990, Public Storage has produced roughly six times the return of the S&P 500, and that period included one of the worst recessions in history,” he wrote.
It enjoys a great competitive position since it is by far the largest self-storage company with 2,600 facilities, the Motley Fool article says. That means Public Storage can continue thriving in good times and remain profitable in bad.
“Self-storage has lower maintenance, staffing and turnover costs than other types of real estate,” Frankel wrote, “and while Public Storage can break even with just 30 percent occupancy, it’s currently at around 95 percent. In other words, if a recession hit and Public Storage’s occupancy fell to, say, 80 percent, the company would still be a long way from becoming unprofitable.”
Now let’s look at the opposing viewpoint.
Dane Bowler, writing in Seeking Alpha, agreed that Public Storage has racked up an impressive record. But that may be about to change, he opined.
For one thing, supply is booming. That’s because building a storage facility is profitable for a developer right now, and it’s relatively easy to construct. “Development in this sector is available to many and highly lucrative so we anticipate substantial supply coming in,” he wrote.
Indeed, the company’s chief executive recently admitted that he sees up to 2,500 facilities coming on line the next couple of years. That’s almost the equivalent of an entire Public Storage – the largest in the industry – being added to supply.
Sharply rising supply, of course, means more marketing costs and discounted rents. Already, the chief financial officer of Public Storage said he’s seeing “softness in demand” in the industry. The company has had to spend more money to keep demand about where it has been, he said in a recent conference call with analysts.