Amerco’s prospects look strong with growth driven by baby boomers and millenials

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Amerco (UHAL) is North America’s largest do it yourself moving and storeage operator.  The one that rents out the familiar U-Haul trucks and trailers for one way transportation.

The stock rose sharply from 2012 to the end of 2015 as the company increased revenues by 30% and net income by 85% (FYE March 2013 to March 2016) but has since fallen back by around 10% and now trades on a PE of 16.3.

However Amerco’s prospects remain strong with annual EPS growth of 15% forecast over the coming years and there are a number of reasons to believe these forecasts.

Firstly, the truck rental business is a $19 billion industry with growth expected to accelerate as the economy picks up, millenials reach the peak moving age range of 18 to 35 and baby boomers reach retirement age.

There is a growing amount of evidence that suggests millenials (typically born after 1990) do not love urban living any more than previous generations and have remained in urban centres solely due to the great recession and other factors. Now, as they approach their mid to late twenties, they are increasingly moving to suburbs as they become more established in their careers and start families.

Similarly an increasing number of baby boomers say they intend to move house after they retire. Many say they intend to move to the sunbelt but even for the majority who prefer to remain close to family and friends the attraction is increasingly to downsize, to move out of urban centres or to move for a change of lifestyle. Last year almost 600,000 Americans moved from the Midwest and Northeast to the Sun Belt states, the most since 2005.  Many others are expected to relocate from the suburbs to more convenient city-living.

Further, the percentage of Americans that rent their home has increased from 31% to 36% over the past ten years. Renters are more mobile and tend to move home more often than home-owners.

Finally, Amerco’s leading position is supported by its huge network which dwarfs its rivals. The company has 21,000 locations compared to approximately 2,300 at rival Penske and 1,500 at Budget. The advantage of such a large network is that customers benefit from a better choice of origins and destinations while Amerco benefits from economies of scale that lower costs. Additionally competitors would face huge costs if they tried to replicate such a network.

All of these trends bode well for the moving and self storeage business. The long term trends are positive and U Haul has a leading position that allows it to enjoy lower costs and greater profits than competitors.

 

Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high-risk activity and not suitable for everyone. It is strongly recommended that individuals should consult with a SEC-registered investment adviser prior to making any investment decisions.

Disclosure: The author holds no positions in any of the stocks mentioned nor has any intentions to initiate any in the next 72 hours.

 

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