2023-05-26 03:30:31 ET
Summary
- U-Haul's value continues to rise year after year on steady management of its truck rental and real estate storage businesses.
- Exceptionally low share trading volume during April-May could be setting up a price spike higher on any good news into early summer.
- Absent a severe recession, shares have the potential to rise +20% to +35% over the coming 12 months.
In my quant-sorting formulas, a name popping up the last few days exhibiting real price momentum to the upside, alongside a near total absence of sellers is U-Haul Holding Co. ( UHAL ) ( UHAL.B ), formerly Amerco . Looking at the buy proposition, the valuation story is better than you would expect from a stock that has doubled in price over the past couple of years. Plus, the inflation in worth of used vehicles and real estate (most of U-Haul's assets) likely means the book value calculation of $33.48 per share is far below any liquidation worth.
Based on my research, if a deep recession can be avoided later in 2023, today's lack of sellers could be overrun by buyers as operating results continue to grow. So, it's entirely possible U-Haul will continue to outperform the SPDR S&P 500 Index ETF ( SPY ) and SPDR S&P Transportation ETF ( XTN ), similar to total returns outlined over the last decade.
YCharts - U-Haul vs. SPY & XTN, Total Returns, 12 Months YCharts - U-Haul vs. SPY & XTN, Total Returns, 3 Years YCharts - U-Haul vs. SPY & XTN, Total Returns, 10 Years
Valuation Story
U-Haul is not trading at incredible bargain levels. However, it is not overvalued either. Based on its modern trading history, we could get $80 a share next year on rising operating results in a slow-growth macroeconomy to $40 in a serious economic contraction. Such would put shares on the high end to the low side of the valuation curve for shares over the previous 10 years of trading.
I have graphed price to trailing fundamental results below, looking at earnings, sales, cash flow, and book value. For the most part, these basic ratios are selling near 10-year averages. Price to book value is cheap, while price to earnings is on the high side. If there's any good news, Wall Street analysts are forecasting cash EPS of $5 for fiscal 2023 ending in March, which would translate into a current P/E of only 12x.
YCharts - U-Haul, Fundamental Valuation Ratios, 10 Years
When we add debt to total equity, and subtract cash holdings, U-Haul's enterprise valuation is equally in the middle of its decade range historically. EV to EBITDA of 6.6x and revenues of 2.5x, do not scream buy or sell by themselves.
YCharts - U-Haul, Enterprise Value Ratios, 10 Years
Upside Technical Momentum + Few Sellers
What's grabbed my attention on the charts is an unprecedented absence of sellers for several months running (boxed in green). Really, the only relatable circumstance and chart pattern from this company can be found in the late-2014 to early 2015 experience.
Below we can compare both periods and contemplate whether a repeat of the +50% price advance of 2015 is in store for U-Haul going into early 2024. The bullish read is price now stands above both its 50-day and 200-day moving averages, with rising trends in each.
A super-low 14-day Average Directional Index measurement around 10 is also present (circled in green). The ADX is a look at price volatility, where today's number suggest a balance in buyers and sellers. Lastly, trends in the Negative Volume Index and On Balance Volume indicator are somewhat constructive, meaning little in the way of aggressive selling exists.
What I am weighing is the apparent shortage of shares for sale could easily lead to a large price spike on any good news from management. Earnings are due in the coming week. So, that's one potential catalyst for buyers to overwhelm sellers.
StockCharts.com - U-Haul, Author Reference Points, 15 Months of Price & Volume Changes
The closest chart pattern parallel is December 2014 to January 2015, marked with the "You Are Here?" green arrow below. Extremely slow volume (boxed in green), after a retest rebound above its 200-day moving average, with a 14-day ADX score near 10 (circled in green), next to flat to decent movements in the NVI and OBV constructs - are nearly today's exact setup.
Immediately thereafter, UHAL's price rose over +50% during the next 10 months. Will history repeat or at least rhyme? We will soon find out.
StockCharts.com - U-Haul, Author Reference Points, Price & Volume Changes, April 2014 - Dec 2015
Final Thoughts
That's not to say real downside does not exist. Deep economic contractions historically have not been the kindest to U-Haul shareholders. You can review this reality on a 28-year graph of price below, with recessions shaded in grey.
YCharts - U-Haul Price, Recessions Shaded in Grey, Since 1995
And, because of this reason, I am keeping my position on the light side in portfolio construction. In terms of risk, your outlook for a soft landing or severe recession should form the basis of any buy decision in this security. If you are an investor worried about a monster recession as suggested by the inverted Treasury yield curve, and/or the high odds of a slowing economy simply from excessive inflation effects on consumer spending, there's no need to jump into U-Haul shares.
For me, the temptation to invest in this unique low-volume, rising price pattern is too great. I can see a +10% to +20% quote bump over a few weeks or months, as a likely outcome of today's shortage of share sellers. Could the zigzag future be a solid advance, followed by price drifting lower into the middle of 2024? Absolutely. That's why I am focused on a short-term trade to reduce recession risks. In the end, a retest of the current 200-day moving average spot around $58 is also a possibility (on the Washington politician Treasury debt ceiling fight), before a rebound over $70 later in the summer.
In a soft-landing scenario, UHAL could drift toward the upper end of its valuation range (top 15% over time). Specifically, 20x cash EPS gets you $100 per share for an upside target; 8x sales supports $70; 3x sales equals $95; and 3x book value adds up to $100. When we combine the four data points, a bullish forecast (assuming little growth in the business) is to anticipate a share quote between $75 and $85 by the middle of 2024, +20% to +35% for a total return. Just remember, a prolonged recession would negate this bullish thesis. A blowout recession (with weaker operating performance) and ultra-low UHAL valuation historically (bottom 15%) could push price closer to book value around $40.
I rate shares between a Hold and a Buy personally. U-Haul could be an interesting upside trade idea for several months (where investors/speculators lock in quick gains), or it could become a stronger buy idea in the mid to upper-$50s later this summer. For sure, I am curious how the lack of sellers plays out into June.
Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.
For further details see:
U-Haul: A Shortage Of Sellers In May