Rating Update: Stock Rating D-Negative (1/2/20)-Amerco (UHAL).

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BUSINESS

AMERCO operates as a do-it-yourself moving and storage operator for household and commercial goods in the United States and Canada. The company’s Moving and Storage segment rents trucks, trailers, portable moving and storage units, specialty rental items, and self-storage spaces primarily to the household movers; and sells moving supplies, towing accessories, and propane. It also provides uhaul.com, an online marketplace that connects consumers to independent Moving Help service providers and independent self-storage affiliates; auto transport and tow dolly options to transport vehicles; and specialty boxes for dishes, computers, and sensitive electronic equipment, as well as tapes, security locks, and packing supplies. This segment rents its products and services through a network of approximately 1,790 company operated retail moving stores and 20,000 independent U-Haul dealers.
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INVESTMENT RATING

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UHAL’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a modest Value Builder.

Amerco has a current Value Trend Rating of D (Negative).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. Amerco has a neutral Appreciation Score of 47 and a slightly negative Power Rating of 33, and the Negative Value Trend Rating results.

Amerco’s stock is selling at targeted value. The current stock price of $382.20 compares to targeted value 12 months forward of $372.
This neutral appreciation potential results in an appreciation score of 47 (53% of the universe has greater appreciation potential.)
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Amerco has a Power Rating of 33. (This slightly negative Power Rating indicates that Amerco’s chances of enjoying attractive investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly negative Power Rating include: is currently in an unfavorable positi; the trend in Amerco’s earnings estimates has been unfavorable in recent months; and recent price action has been neutral.

INVESTMENT PROFILE

Amerco’s financial strength is high. Financial strength rating is 71.
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Relative to the S&P 500 Composite, Amerco has slightly more Value than Growth characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that UHAL is normal risk. Low stock price volatility is a positive for Amerco. Relative weaknesses include: low forecasted profitability, and low expected growth. Amerco’s valuation is moderate: low dividend yield, moderate P/E ratio, and low price/book ratio. UHAL has unusually low market capitalization.

CURRENT SIGNALS

Amerco’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.

Amerco’s current technical position is very strong. The stock price is in a 12.4 month up move. The stock has appreciated 28.8% from its prior low. The stock price is above its 200 day moving average which is in an uptrend. The stock has just risen above its 200 day moving average. The 200 day moving average has just turned up.

ALERTS

. Positive development: the stock’s recent price rise disrupted its longer term downtrend. Negative development: negative upside/downside volume developed.
The stock is currently rated D.
Amerco (NASDAQ: UHAL) stock closed at $1.75 on 1/2/20 after a major increase of 12.2%. Trading volume in this advance was normal. The stock has risen 3.4% during the last week and has performed in line with the market over the last nine months.

CASH FLOW

In 2019, Amerco experienced a slight decrease in cash of -$55 million (-7%). Sources of cash were slightly lower than uses. Cash generated from 2019 EBITDA totalled +$1,175 million. Non-operating sources contributed +$39 million (+3% of EBITDA). Cash taxes consumed -$14 million (-1% of EBITDA). Re-investment in the business amounted to -$1,663 million (-142% of EBITDA). On a net basis, debt investors provided +$495 million (+42% of EBITDA) while equity investors removed -$87 million (-7% of EBITDA).
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Amerco’s Non-operating Income, %EBITDA has exhibited a very small overall uptrend over the period. This improvement was accompanied by stability for the Amerco Peer Group. In most years, Amerco was in the top quartile. Currently, Amerco is at the upper quartile at +3% of EBITDA (+$39 million).

Amerco’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Amerco Peer Group as well. (Since 2016 Cash Taxes, %EBITDA has experienced sharp improvement.) In most years, Amerco was in the top quartile and second quartile. Currently, Amerco is upper quartile at -1% of EBITDA (-$14 million).

Amerco’s Business Re-investment, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by stability for the Amerco Peer Group. In most years, Amerco was in the third quartile and second quartile. Currently, Amerco is lower quartile at -142% of EBITDA (-$1,663 million).

Amerco’s Debt Investors, %EBITDA has experienced a very strong overall uptrend over the period. This improvement was accompanied by stability for the Amerco Peer Group. In most years, Amerco was in the second quartile and top quartile. Currently, Amerco is at the upper quartile at +42% of EBITDA (+$495 million).

Amerco’s Equity Investors, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Amerco Peer Group. In most years, Amerco was in the second quartile. Currently, Amerco is above median at -7% of EBITDA (-$87 million).

Amerco’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Amerco Peer Group as well. (Since 2016 Change in Cash, %EBITDA has experienced a very sharp decline.) In most years, Amerco was in the second quartile and third quartile. Currently, Amerco is slightly above median at -5% of EBITDA (-$55 million).
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Amerco’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Amerco Peer Group as well. In most years, Amerco was in the second quartile. Currently, Amerco is slightly above median at +20%.

PROFITABILITY

Amerco’s return on equity reached a new post-2010 low in 2019.
This was due to very strong negative trend in pretax operating return and little change in non-operating factors.
The productivity of Amerco’s assets declined over the full period 2010-2019: asset turnover has suffered a very strong overall downtrend.
Additionally, pretax margin has exhibited little to no overall change although it experienced a very sharp decline from the 2015 level.
Non-operating factors (income taxes and financial leverage) had little influence on return on equity.
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Amerco’s return on equity is substantially below median (9.1%) for the four quarters ended September, 2019.
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Operating performance (pretax return on assets) is at the lower quartile (3.7%) reflecting asset turnover that is at the lower quartile (0.30X) and pretax margin at the lower quartile (12.2%).
Tax “keep” rate (income tax management) is lower quartile (77.9%) resulting in after tax return on assets that is at the lower quartile.
Financial leverage (leverage) is above median (3.17X).

GROWTH RATES

There are no significant differences between Amerco’s longer term growth and growth in recent years.
Amerco’s historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has paralleled equity growth.

Annual revenue growth has been 6.8% per year.

Total asset growth has been 13.9% per year.

Annual E.P.S. growth has been 17.6% per year.

Equity growth has been 18.6% per year.

Amerco’s consensus growth rate forecast (average of Wall Street analysts) is -5.4% — substantially below the average of the historical growth measures.
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Relative to the Amerco Peer Group, Amerco’s historical growth measures are generally top quartile. Equity growth (18.6%) has been upper quartile. Total asset growth (13.9%) has been at the upper quartile. E.P.S. growth (17.6%) has been at the upper quartile. Revenue growth (6.8%) has been below median.

In contrast, consensus growth forecast (-5.4%) is lower quartile.
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PRICE HISTORY

Over the full time period, Amerco’s stock price performance has been variable and exceptional. Between March, 2009 and January, 2020, Amerco’s stock price rose +1040%; relative to the market, this was a +179% gain. Significant price moves during the period: 1) May, 2012 – October, 2015: +383%; and 2) January, 2010 – April, 2011: +169%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of 15.0% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through December, 2019 of 15.0% is lower quartile relative to Amerco Peer Group.

Current 5-year total return performance of 6.5% is below median relative to the S&P 500 Composite.
Through December, 2019, with below median current 5-year total return of 6.5% relative to S&P 500 Composite, Amerco’s total return performance is lower quartile relative to Amerco Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, UHAL’s overall valuation is low. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is at median. Price/earnings ratio is below median. Ratio of enterprise value/revenue is below median. Ratio of enterprise value/assets is lower quartile. The lowest factor, the price/equity ratio, is lower quartile.

Relative to Amerco Peer Group, UHAL’s overall valuation is normal. The highest factor, the price/earnings ratio, is slightly above median. Ratio of enterprise value/earnings before interest and taxes is slightly below median. Ratio of enterprise value/revenue is below median. Price/equity ratio is below median. The lowest factor, the ratio of enterprise value/assets, is below median.
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Amerco has a large value gap compared to the median valuation. For UHAL to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 2.97X to 3.26X. If UHAL’s ratio of enterprise value/revenue were to rise to 3.26X, its stock price would be lower by $58 to $440.
For UHAL to hit lower quartile valuation relative to the Amerco Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 2.97X to 2.49X. If UHAL’s ratio of enterprise value/revenue were to fall to 2.49X, its stock price would decline by $-94 from the current level of $382.

VALUE TARGETS

UHAL’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a modest Value Builder.
Amerco’s current Price Target of $395 is little changed from the current price of $382.20.
This neutral appreciation potential results in an appreciation score of 47 (53% of the universe has greater appreciation potential.)
Reinforcing this neutral Appreciation Score of 47, the moderately low Power Rating of 33 contributes to an Value Trend Rating of D.
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Amerco’s current Price Target is $395 (-22% from the 2019 Target of $504 but +3% from the 01/02/20 price of $382.20). This fall in the Target is the result of a +16% increase in the equity base and a -32% decrease in the price/equity multiple. The forecasted decline in cost of equity has a slight positive impact on the price/equity multiple and the forecasted increase in growth has a slight positive impact as well. More than offsetting these Drivers, the forecasted decline in return on equity has a very large negative impact.
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PTR’s return on equity forecast is 10.5% — slightly below our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2011 and 2019. The current forecast is significantly below the 2014 peak of 22%.

PTR’s growth forecast is 14.0% — in line with our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2011 and 2019. The current forecast is well above the 2011 low of 5%.

PTR’s cost of equity forecast is 8.9% — in line with recent levels. Forecasted cost of equity exhibited a modest, erratic increase between 2011 and 2019. The current forecast is steady at the 2011 low of 7.9%.
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At Amerco’s current price of $382.20, investors are placing a positive value of $75 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 13.0% per year, and a return on equity of 13.3% versus a cost of equity of 9.2%.
PTR’s 2021 Price Target of $395 is based on these forecasts and reflects an estimated value of existing assets of $293 and a value of future investments of $103.

About John Lafferty 58188 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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