Public Storage Gets A Boost As Goldman Sachs Removed Co. From Its Sell List

Citing stabilizing revenue growth and attractive valuation, Goldman Sachs has upgraded Public Storage PSA shares to Neutral from Sell and raised its price target by $10 to $220, implying a total return of 12 percent.

“Two factors support the view that PSA’s same store growth deceleration is near over: (1) US trailing twelve month employment growth – which is highly correlated to PSA same store revenue growth – has ceased to decline for five consecutive months, and (2) PSA’s period-end rent and occupancy levels are slowing less,” analyst Andrew Rosivach wrote in a note.

Rosivach pointed out that Public Storage’s end of quarter occupancy was flat in the third quarter year-over-year versus a 50 basis point decline in the second quarter of 2016. Further, the analyst projects the same store revenue growth rate in the fourth quarter to be similar to the 5.1 percent reported in the third quarter 2016.

Moreover, the analyst expects Public Storage’s growth to surpass that of REIT peers. Public Storage’s rate of estimated earnings growth exceeds Goldman Sachs REIT coverage average growth by 1.7 percent in 2017.

That said, Rosivach cut his 2017/2018 FFO estimates to $10.50/$11.11 from $10.54/$11.18. However, his 2016 FFO view remains unchanged at $9.58.

The analyst’s $220 price target is based on a target 2019 AFFO multiple of 19.4x (up from 18.2x previously), which is a 10 percent premium to the sector.

“We still believe PSA justifies a premium vs. the rest of our REIT coverage, supported by lower relative leverage and a 7.4 percent 2017 growth rate, 170 basis points above our coverage average,” Rosivach added.

Shares of Public Storage closed Friday’s trading at $207.75.