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The past six months have been brutal for Public Storage Inc. (NYSE:PSA), which has seen its stock price lose about 35%. It's now trading below where it was 12 months ago. The company's net income in 2006 was well below what it was in 2005, after a few years of steady growth, and the first two quarters of 2007 haven't been much better. Its net income in the second quarter was down nearly 25% from the second quarter of 2006, and for the first six months it is down nearly 50% from the first half of 2006. It's no wonder investors have been worried.

But PSA argues its results are due in large part to the amortization and depreciation costs associated with its acquisition of Shurgard, the third-largest self-storage company in the U.S., and the largest one in Europe. While this acquisition may have hurt PSA in the short term, I think it's going to help the company a great deal in the long run. PSA has always benefited from strong management, and I think it's going to make the increased revenues from Shurgard turn into increased profits before too long. PSA is the leading self-storage company in the country, with modest if steady growth in same-store revenues, and the new acquisition will only make it stronger.

It may take some time for this growth to come. With a slowing housing market and an uncertain economy, people may be moving less and acquiring fewer goods that need storage. It's possible a slowing economy could force homeowners to move to smaller houses and require storage space, but generally it works the other way. Goldman Sachs (NYSE:GS) recently released a report that lowered its earnings estimates for the next few years, and lowered its 12-month price target to $78 from $86.

But the Goldman report also claimed that PSA has strong growth potential, and it expects further acquisitions and higher rents to drive this growth. I think this is the right way to see this company - but it may take a year or two. You may want to wait, but you could also buy now and enjoy the modest dividend (2.7%) while you wait for the company to return to where it should be. Public storage will always be in demand, and this company will be there to service that demand.

Type of Stock: The largest self-storage company in America, facing an uncertain economy.

Price Target: PSA has regained some ground (about 15%) after dropping from $117 to $68, and it's currently trading in the low $70s. I think it's a solid buy for the long term below $80 - but you'll need to be patient.

PSA 1-yr chart:

PSA 1-yr chart

Source: Is Your Money Safe in Public Storage Inc.?