On Monday, KeyBanc has increased the price target for Extra Space Storage (NYSE:EXR) shares to $178 from the previous target of $172, while maintaining an Overweight rating on the stock. The firm's analyst cites the potential for the company to achieve growth superior to its peers in the near and medium term. This outlook is supported by the benefits expected from the LSI merger, which was completed in July 2023.
Extra Space Storage is anticipated to leverage its revenue management platform, third-party management business, and external growth strategies, including its structured finance book, to support further growth. Additionally, the company's balance sheet stands to benefit significantly from any reduction in borrowing costs, especially since about 20% of its debt is comprised of unhedged variable rate debt.
Despite the stock's 10.6% year-to-date increase, it has underperformed the Self Storage REITs by 330 basis points. The analyst believes that market expectations for Extra Space Storage remain mixed. The stock is currently trading at a 4.5% implied capitalization rate, which is 30 basis points narrower than the Self Storage REIT subsector. This is in contrast to the average 50 basis points spread versus peers since 2011, following the sector's recovery from the Global Financial Crisis (GFC).
Moreover, the stock is trading at a 5.8% 2025 adjusted funds from operations (AFFO) multiple premium compared to its peers. This is slightly lower than the historical average premium of approximately 8% to AFFO versus peers. The analysis by KeyBanc reflects a positive outlook on the company's ability to outperform in the coming terms based on its strategic initiatives and market position.
In other recent news, Extra Space Storage has been the subject of several key developments. Scotiabank raised the company's price target to $169, citing potential growth catalysts such as an uptick in housing mobility and easing supply pressures. Truist Securities also increased its price target for Extra Space Storage to $167, while maintaining a Hold rating. Conversely, BofA Securities downgraded the company from Neutral to Underperform, citing a challenging outlook and weaker market demand in areas like Florida.
Extra Space Storage announced a Q3 dividend of $1.62 per share and issued $400 million in 5.350% Senior Notes due 2035, a strategic financial move to support its growth and operational strategies. The company exceeded its projected funds from operations (FFO) per share in Q2, noting a significant improvement in same-store occupancy and revenue growth.
InvestingPro Insights
With Extra Space Storage (NYSE:EXR) demonstrating a robust performance, insights from InvestingPro further enrich the positive sentiment shared by KeyBanc. The company's commitment to shareholder returns is evident as it has raised its dividend for 14 consecutive years, showcasing a stable financial policy that investors often appreciate. This consistency in dividend payments is further bolstered by the company maintaining these payments for 21 consecutive years, highlighting a long-term reliability that can be attractive to income-focused investors.
In terms of valuation, Extra Space Storage is trading at a high earnings multiple, with a P/E ratio of 45.34, which is above the industry average, suggesting a strong market belief in the company's future growth prospects. The company's revenue growth is also impressive, with a 55.85% increase in the last twelve months as of Q2 2024. This significant growth is supported by a solid gross profit margin of 74.3%, indicating efficient operations and cost control.
It's noteworthy that analysts are optimistic about the company's performance, with 4 analysts having revised their earnings upwards for the upcoming period. For investors seeking detailed analysis and additional insights, there are more InvestingPro Tips available, which can be found on the InvestingPro platform for Extra Space Storage.
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