20 BARRON’S September 16, 2019
Amerco
Weekly close on Sept. 13
(UHAL / Nasdaq)
Source: FactSet2018
300
350
$
2017 2019
The parent of industry leader U-Haul
also has a growing self-storage
business that is underappreciated
by investors. By Andrew Bary
Pack Away
This Stock
Before It
Moves Up
INVESTORS ARE CRAZY FOR COMPANIES WITH COMPET-
itive moats, andAmercohas 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)isalsooneofthe
better-kept secrets in the stock market. That’s
becauseithasvirtuallynoanalystcoverage,com-
municates little with investors, and is run like a
private business by the controlling Shoen family,
which owns about half of the stock.
Itsshares,tradingat$380,lookappealingafter
having been stuck in a range of $325 to $400 for
most of the past four years.
U-Haulisoneoftheoriginalnetwork-effectbusi-
nesses,with21,000locations.Yetinvestorsaregiv-
ingAmercolittlecreditforitsself-storagebusiness,
evenasAmericansseemtohaveaninsatiableneed
to store more stuff. Pure-play self-storage compa-
nieslikeindustryleaderPublic Storage(PSA),as
well asCubeSmart(CUBE) andLife Storage
(LSI), have been rewarded with high valuations.
“Amercoiscrazycheap,”saysSteveGalbraith,
chief investment officer at Kindred Capital Advi-
sors in Norwalk, Conn., a holder of the shares.
“The stock is worth more than $500 a share.”
The stock could require some patience. Man-
agement is uninterested in breaking up the com-
pany, and family control precludes activist in-
volvement. Still, it is the kind of business that
would probably appeal toBerkshire Hathaway
(BRK.B) CEO Warren Buffett if the Shoen family
ever decides to sell. Amerco has a digestible mar-
ket value of $7.4 billion, plus net debt of about
$3.8 billion.
Amerco’sbossofthepast32years,the70-year-
old Edward “Joe” Shoen doesn’t have the CEO
title. He’s president and chairman. He’s thrifty, a
manofrelativelyfewwords,andpaidmodestlyby
currentCEOstandards—just$1millionannually—
withfourothertopexecutivesearningacombined
$2million. The company’s dividend is low, at less
than 1%, and it doesn’t buy back stock.
GalbraithandotherinvestorsgiveShoenhigh
marksforsolidifyingthecompany’sdominantposi-
tion 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
largeparcelonManhattan’sfarWestSide—fora
nearly $200 million gain—to an apartment-tower
developer. The carrying value of the long-held
propertyon23rdStreetand11thAvenuewasjust
$5 million.
Barron’swrote favorably about the company
threeyearsago(“U-HaulParentAmerco:Ready
toMove,”Oct.22,2016).Thestockisup15%since
then, trailing the overall market.
WhileAmercopaysalowdividend,itdoesoffer
investors the opportunity to buy debt securities
backed by a corporate guarantee and specific
equipment—includingtrucksandevenutilitydol-
lies—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
$80million of this debt outstanding—including
morethan$20millionfromtheShoenfamily.One
negativeisalackofliquidity.Investorsshouldbe
prepared to hold the debt until maturity.
Amercoisn’tcheap,tradingforalmost20times
earningsinitsfiscalyearendedinMarch.Profits
for the June quarter were $6.76 a share, up from
$6.53ayearearlier.Earningsforthecurrentyear
are expected to be $20 a share, up 5% from the
$18.93inthepreviousfiscalyear.Earningspeaked
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
rapidbuild-outoftheself-storagebusinesshaspe-
nalizedearningsbecauseoflowinitialoccupancy.
Asked about flat earningsover the past five
yearsatthecompany’sannualinvestorandanalyst
day, conducted online in August, Shoen said that
profits in the next five are “almost certain to im-
prove,”citinghigherrentalfleetuse,thecomple-
tionofself-storagefacilities,andhigheroccupancy,
now under 70%, against an industry average of
morethan90%.“We’restartingtogettothepoint
whenthecurveisstartingtobend,andthatshould
resultinearningsimprovement,”saysJasonBerg,
Amerco’s chief financial officer.
Amerco owns 38 million square feet of self-
storagespaceandatleast14millionmoresquare
feet in development. Storage revenue totaled
$367million in the latest fiscal year and could
nearlydoubleasoccupancyrisesandnewproper-
tiesarecompleted,Bergsaidattheinvestorday.
Withpublicpeersvaluedatmorethan10times
revenue,theself-storagebusinesscouldbeworth
$6billion,givenitsgrowthprospects.Investorsef-
fectivelyarepayinglittlefortheself-movingbusi-
ness, Galbraith says.
He adds that annual earnings can hit $30 a
shareinthenexttwoorthreeyears,asoperating
margins,whichranat15%inthelatestfiscalyear,
top 20%—still below the peak of about 24% hit in
fiscal 2016. He points out that revenue from self-
movinghasrisenata6.4%annualizedrateinthe
past10yearsand7%inthepast12months.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.
“Amerco is
crazy cheap.
The stock is
worth more
than $
a share.”
Steve Galbraith,
Kindred Capital
Lars Hagberg/Alamy
Amerco/
UHAL
RecentPrice:
$378.
MarketValue(bil):
$7.
52-WeekChange:
6%
2019EPS:$18.
2020 EEPS:$20.
2020 EP/E:18.
DividendYield:0.4%
Note:Fiscalyearends
inMarch.E=estimate.
Source:Bloomberg
w020_p2bw259000_0_w02000_1________xa2019_01.pdf 114-Sep-19 03:40: