U-Haul Stock: Progressively Growing Franchise And Shareholder Value (NYSE:UHAL) (2024)

The following segment was excerpted from this fund letter.

U-Haul Holding Company (NYSE:UHAL)

Insider Intelligence: Continuing to Light the Way

A strong, if not predominant, factor driving new idea generation in our managed account portfolios over the last year continued to be material insider buying in companies that, at purchase, were trading at significant discounts to our estimates of their underlying intrinsic value. We have always felt strongly that purchases of shares by knowledgeable insiders at times when their company stock is trading at low prices in relation to metrics such as book value, earnings and/or cash flow can be a powerful clue to possible future outperformance of their companies' shares. Empirical evidence supports this view. As a reminder, the term "insider buying" refers to legal purchases of shares in their own company by corporate "C suite executives," corporate directors, and large shareholders. We also take an interest in studying companies that are buying back their shares, particularly when they appear to be undervalued.

Thanks to the increasing power and complexity of centralized data aggregation, various data services can now deliver this information to us on companies from all over the globe on a daily basis and in a variety of formats that enhance the data's efficacy. For example, these services allow us to now track longer-term purchase patterns by insiders together with valuation metrics for the company's shares at times of purchase, and the price performance of the shares after purchase. Companies can also be ranked based on the strength of recent insider trading patterns in their shares. Some of these services also track share buyback activity by companies including number of shares bought back, prices paid, associated valuation metrics at the time of purchase, and the history of the company's buyback behavior. This kind of information, which we sometimes refer to as "insight information," serves as an important complement to our more in-depth quantitative and qualitative fundamental analysis.

A New Position

Over the last twelve months, we established a new position in U-Haul. Founded in 1945, U-Haul is the largest do-it-yourself (DIY) moving equipment rental business and the fourth largest self-storage operator in North America.

U-Haul is dominant in the DIY moving equipment rental market (with estimated ~40-50% market share). With 23,000 stores, U-Haul is significantly larger than its national competitors Budget and Penske (PAG). The business has high barriers to entry and strong network effects. For customers, U-Haul often presents the best combination of proximity to origin and destination, equipment availability, and pricing. Moreover, the ubiquity of the U-Haul brand, ever present on North American highways, reduces the need to spend advertising dollars to generate new business.

U-Haul also operates 1,920 self-storage locations in the US and Canada, comprising approximately 81 million square feet combined owned and managed (of which 58 million is owned). It has a roughly 4% market share in a still-fragmented market (largest player has 13% share). Since 2013, U-Haul has grown total owned self-storage square footage at a 13% compound annual growth rate ("CAGR"). Importantly, we believe the rapid expansion of this business segment masks underlying, latent earnings power. New self-storage units typically take three to four years to become cash flow positive. Today, ~57% of U-Haul's owned self-storage square footage is considered "non same store", which means they are less than three years old and/or have had less than 80% occupancy for the last two years. As the newer self-storage facilities mature, we believe significant latent earnings power embedded in the real estate portfolio will be unlocked.

When estimating the intrinsic value of U-Haul, it's important to recognize that both the moving and self storage businesses benefitted from a material post-Covid boost, which started to inflect in the latter part of 2022. Thus, we used lower "normalized" earnings estimates in order to avoid capitalizing peak earnings, and to arrive at our estimate of intrinsic value for U-Haul we applied an 11x multiple to our view of "normalized" EBIT for the moving business and a conservative replacement build cost per square foot method for the self- storage business. With these assumed inputs, we concluded that U-Haul's business had the potential to be worth up to approximately $70/share as of the quarter ended June 30, 2023. Notwithstanding, there remains the risk that the degree of inflection in U-Haul's earnings post its Covid boost could have a more detrimental impact to near term earnings comparisons, and the risk inherent in all value investing that the market will not recognize a security's intrinsic value for a long time, or that a security thought to be undervalued may actually be appropriately priced when purchased.

There has been significant recent insider buying at U-Haul. The Chairman and CEO, Edward ('Joe') Shoen, and his brother Mark Shoen spent a total of $78 million purchasing the voting shares at an average price of about $58 per share between November 2022 and March 2023. The Shoen family collectively owns 61% of the voting shares and 43% of the non-voting shares. While there has previously been family in-fighting within the Shoen family, the company under Joe Shoen's leadership has maintained management stability for the last 30-plus years, quietly and progressively growing the franchise and shareholder value. Because of the higher liquidity and lower price, initial purchases for managed portfolios were of the non-voting shares at prices, on average, of approximately $50.50 per share.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.