I wrote about Amerco (UHAL) and its potential as a great investment opportunity for the first time in July 2013 when it was trading at about $169. The company's stock has risen over 30 percent since then and was trading at $224 at the time of the last close with a trailing P/E of 13.4. In its last earnings call the company reported a year over year EPS growth of approximately 26%. Earnings from operations increased approximately 24% with gains in both its Moving and Storage segment, as well as, its insurance subsidiaries. I think that underlying its robust performance and setting the stage for long term growth, are three smart strategies that are being used by the company's management.
Selective Competition: Between moving, storage and insurance, Amerco has its fingers in many different (albeit related) pies. But the company has avoided getting sidetracked and intelligently focused on competing with its peers by building a "one stop shop", using new products and services to supplement its core business.
One example of this is the strategy it has followed in the self-storage business. With over 40 million square feet of rentable storage space that has grown by 2 million square feet in the past year, the company could be a formidable player in the self-storage REIT market. But it has pragmatically recognized that its business is different from that of a REIT and has avoided aggressive bidding wars for acquisition of self-storage property. Management has voiced its commitment of acquiring additional space only at a cost that is reasonable, and not paying high prices in a bid to outdo its competitors.
Another example is moving help that the company offers along with its core products and services. The service is still under-utilized and has room for healthy expansion. However it is a service for which the company receives a fee and is not a likely source of high cash generation. While the company is trying to enhance its advertising of this service to boost usage of this feature, it recognizes that the goal is not to compete with mainstream moving help companies. The idea is to provide better customer service by bundling all the moving and storage needs of a customer into one convenient package.
Strategic Investments: The Company has been smart about re-investing cash in its future by growing its rental equipment fleet and its distribution network. In the past 1 year alone it has added 45 new locations and 500 dealer sites. An example of strategic vision was between 2007 and 2010, when management showed the foresight to invest in renewing its vehicle fleet which helped to grow revenue in subsequent years.
On the self-storage side as well, the company has been making investments to enhance future growth prospects. Geography is important in the self-storage business and the company utilizes that knowledge for both acquisition and management purposes. It has strategically planned its expansion in areas where the availability of DIY storage is lower than the national average and there is opportunity for greater growth. At the same time it is committed to doing well in areas that have tougher competition.
Similarly with the U-Haul moving segment, the company is targeting a larger footprint which not only includes major cities, but also very small towns that may not be on the radar for its major competitors.
Additionally, the company offers a plethora of services such as moving, supplies, storage, pick-up, insurance and so on. These cross selling opportunities are great for enhancing customer satisfaction and potentially finding new, meaningful add-on revenue streams in the future.
Smart Sustainability: In the August 2013 Shareholder /Analyst Call, Joe Shoen highlighted the concept that he termed "adaptive reuse" for buildings. I think this is another strategy that demonstrates the company's ability to efficiently and effectively maximize value from its assets. The idea is to take buildings that were originally built for a different use and recover them to use as U-Haul centers. Since the 1970s the company has reused over 1000 sites in this manner, purchasing buildings constructed for a variety of purposes such as grocery stores, movie theaters, bakeries and manufacturing. This has been advantageous to the company by providing it a point of entry into areas that would be difficult to enter. An example given was that of a low income area where the company was able to salvage an existing building and fill the gap for moving services.
Acquiring, adapting and re-using existing structures also means that the company is able to save on many costs that are associated with building a new structure that would otherwise be passed on to the customer. It has optimized usage of these locations by making changes where applicable and by retaining existing features in other cases. For example, they used wood from the roof and ceiling of a building to design structures at the site. Additionally there are environmental benefits of reusing buildings and conserving resources that would otherwise be used for new construction.
Conclusion: Amerco has exhibited strong financial performance and its stock price has been trending up for a while now. But what I find most compelling are these long term strategies that the company has been employing that I think will drive growth and value for investors in the future.