Public Storage Price Target Lowered At Argus On Expected SSS Slowdown

Given slowing same-store-sales (SSS) growth, Argus cut its price target on the shares of Public Storage PSA to $270 from $284.

Argus also slashed its 2017 FFO estimate to $10.50 from $10.58 after the company said it expects a slowdown in SSS growth and occupancy, coupled with higher advertising costs, over the next few quarters.

However, the brokerage maintains its Buy rating on the stock as it expects the company to benefit from sector consolidation and demand improvement as millennials start families and buy homes.

The Backdrop

“Overall, Public Storage appears on track to continue its strong performance in the coming quarters through rent increases, a solid development and redevelopment pipeline, and accretive acquisitions,” analyst Jacob Kilstein wrote in a note.

The analyst upped his 2016 FFO estimate to $9.79 per share from $9.77 to reflect the company’s stronger-than-expected third-quarter results. He raised his 2016 revenue view to $2.56 billion from $2.54 billion, and sees 2017 revenue of $2.67 billion, also above previous estimate of $2.59 billion.

Buying Opportunity

Further, Kilstein believes the recent weakness in shares provides a favorable a buying opportunity. Shares have underperformed the S&P 500 over the last three months, falling 7 percent versus a loss of 1 percent for the index as investors are concerned over margin pressures from promotions and discounts to drive new business.

“[W]e view these concerns as overblown and see low storage supply and the company’s consistently positive operating results as signs of a fundamentally sound business,” Kilstein added.

At last check, shares of Public Storage were up 0.87 percent at $218.33.