Inside Wall Street: U-Haul ahead of its industry
Its parent company, Amerco, is the big winner in the consumer truck rental business.
If you're worried, as some market technical analysts are, about the Dow Jones Transport Index not following the Dow industrials' recent vigorous advance, don't waste your time. No matter what the transport barometer is doing, there are transportation stocks that have picked up speed way ahead of the group.
A particularly impressive stock that has been riding high despite economic headwinds is Amerco (UHAL), the parent of the widely known U-Haul International, which is the world's largest consumer truck rental company and the No. 2 self-storage operator in North America.
U-Haul's stock has been on a roll, racing up to an all-time high of $114 a share on Feb. 10, before easing to $108 seven days later, on Feb. 17. Less than a year ago, in October 2011, the stock was languishing at $60 a share. What's driving U-Haul's success in an industry that's not necessarily so hot?
The company has been reporting strong earnings and revenue growth since fiscal 2010, ended March 31. The year before, when the economic downturn hurt most companies, Amerco barely made money, posting earnings of just 2 cents a share on revenue of $1.9 billion. But U-Haul's business started to recover in 2010, and earnings snapped back. The company earned a whopping $2.74 a share as sales doubled to more than $2 billion.
In 2011, as the economy showed signs of a recovery, U-Haul's advance continued, with earnings rocketing to $8.80 a share, on revenue of $2.2 billion. From all indications, U-Haul's operations defied the odds and looked like they had become recession-proof, with profits and revenues continuing their upswing.
"The impact of the decline in housing and a decrease in apartment occupancy rates appears to have ended," says Ian Gibson, an analyst with Zacks Investment Research, who rates U-Haul as "outperform." He forecasts the company will earn $11.13 a share in 2012 on estimated revenue of $2.48 billion, and $12.44 a share in 2013 on sales of $2.53 billion.
Gibson notes that the relatively mild winter so far had a positive impact on U-Haul's operations, which increased truck rentals. A big part of U-Haul's business comes from do-it-yourself movers who rent trucks when they move. U-Haul's self-storage unit is part of the company's growth as do-it-yourself movers usually find themselves in urgent need of storage space when they move residences. U-Haul also provides customers insurance services, including property-and-casualty, as well as life insurance policies.
As the dominant player in the consumer truck rental industry, U-Haul has continued to have a 50% market share. Other companies in the business are Avis Budget Group (CAR) and Penske's (PAG) truck leasing. The rental fleet of U-Haul, which operates a network of almost 16,000 rental locations in 49 states and 10 Canadian provinces, consists of 101,000 trucks, 82,000 trailers, and 33000 towing devices. The industry isn't exactly cyclical, notes Gibson, since in bad times some people downgrade their living quarters and use self-storage facilities and consumer rental trucks to move and store belongings.
Although it has been a stellar performer, some investors believe the stock has more upside potential as the economy picks up more steam. And corporate insiders control some 70% of shares outstanding, with large institutional investors holding some 28% of the stock, including Dimensional Fund Advisors, Keeley Asset Management Group, and Barclays Global Investors UK Holdings.
That's part of the reason Amerco's stock has been a solid performer -- and not hampered by volatility swings. A tightly held company with majority of the shares held by insiders could be a big advantage, indeed.
Gene Marcial wrote the column "Inside Wall Street" for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.
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After enjoying a smooth rise in stock prices since May, investors are about to be hit with another bout of volatility.
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