Company StatisticsThanks for reading Bright Ideas! Subscribe for free to receive new posts and support my work. Executive Summary U-Haul’s business, quality, and management are underestimated by the market. U-Haul (formerly Amerco) is the dominant do-it-yourself-moving (truck rental) and a top self-storage company established in the 1940s by Joe Shoen’s (current CEO) father. As of the latest report, the company has 189,000 trucks, 128,000 trailers, 46,000 towing devices ~22,000 independent dealers, ~2,200 owned stores, and 55M rentable sq. ft of storage.
Good article. The only point of agreement that I have with you is that U-Haul's scaled dealer infrastructure provides tremendous barriers to entry. I think that you take the data of declining movers rate a little too lightly. Movement is often a result of major life events like marriage, a new job, birth of children, and sometimes death. Americans have been moving from one residence to another less and less over the years as a result of various factors. Just to name two that quickly come to mind:
1. lower marriage rates: ~80% of all households were comprised of married couples in 1949 vs. ~50% as of 2020. The less these events take place, the less movement will be generated as a result of marriages.
2. increasing share of women participating in the workforce: ~30% of married households in the U.S. were dual-income vs. 50% today. Moving decisions become incrementally harder to make when they affect two as opposed to one person.
Also, I'm not sure that COVID provides good indication of what the future of movement/migration might be. As remote-work accommodations gain greater acceptance amongst employers, getting a new job becomes less of a reason to move residence.
U-Haul has been able to grow decently over the years due to share gain and rental penetration. On a forward basis, it's worth thinking about how much of these two levers they've already exhausted before being squarely correlated to the actual number of moves that take place in the U.S. To give you an example in another industry, Booking Holdings (NASDAQ: BKNG) historically grew 30-40% because a percentage of that growth came from (a) online penetration of travel (i.e., more people booking travel accommodations online), (b) OTA share gain in online channels (i.e., OTAs or Online Travel Agents like BKNG taking share from hotel websites as less people booked accommodations on Marriott.com and increasingly went to BKNG), and (c) BKNG share gain from other OTAs as the company acquired competitors. On top of all this, there was also the natural tailwind of more people traveling as average income levels rose. Today, BKNG has exhausted levers (a), (b), and (c). They're left with the raw demand for travel, which is still strong but definitely not 30-40% as history had it.
Another thing, I'm not sure that SOTP is appropriate here. If equipment rental and storage benefit from the synergies you articulated, which I tend to agree with, then separating both businesses may yield results different from what you're seeing presented today. For example, do they still enjoy lower CAC if both businesses are separated?
Lastly, many argue that the company deploys a scaled economies share model (you can track this by dividing rental revenue by gross equipment PP&E over the years - it's been declining, maybe intentionally?). I'm not sure that scaled economies shared is a sound formula to use in the face of structurally declining end-market demand. With ROIC of ~11% on avg. from 2012-2019, it's worth asking if that's an acceptable starting base from which to make projections. As businesses grow larger, the opportunity set shrinks. With the current capital allocation policy, I'm not sure that investors are being compensated for the risk of what's always an unknown future, though in U-Haul's case quite predictable.
Great article! Also, shares have moved nicely lately. Congrats if you participated in the move.
I appreciate the thought-provoking comments. I don't have great answers, but I'll think out loud in my response.
I made UHAL a 10% position with an average cost in the mid-to-high 40s and have kept trimming the entire way up, but it does remain a (shrinking) 9% position today (likely will be far lower next year for tax purposes). To your point, I have been selling it down as my price target has declined a bit from when I originally wrote this article largely due to rates/financing costs. I have it right around the low 70s today. When great companies have 50%+ upside with limited downside in my view I get pretty excited. When they have 10% upside I trim, but I will own this company for a long time unless the price gets well above my stretch target in the 80s. I don't believe the risk-reward is very attractive today. I think I was reasoned when I wrote the article, that I was not jumping up and down at the prices in April.
On moving trends: I think that long-term moving trends have puts and takes - for instance there are so many more people moving states to move to a lower-cost area. A lot of this is because of Covid which allows remote work. Maybe this is a headwind over 10 years from now, but I'd argue it's a tailwind today. The migration across states is rising - UHAL has a virtual monopoly here and these moves are incredibly profitable for them. I think they make more than 10x on a one-way move than they do in an in-town move. So even if the mix changes a bit this is incredibly powerful which I believe is a large part of the recent success. They have been dealing with declining rates for 40 years and it hasn't hurt them yet.
I like and agree with your example from Booking and I don't necessarily disagree it might be the case at UHAL - I do think they'll continue to gain share, but I also believe they can continue to take price which is something I don't think Booking can really do given the amount of competition it has, while UHAL has really none in moving. UHAL has not really taken much pricing in the past. If UHAL takes .5% of the moving market every year and can raise prices 3-5%, I am not going to be upset.
SOTP is controversial with this company, but frankly, it is easier to value in that manner. I don't think it will ever separate in actuality, but perhaps they do so synthetically. To all this above, the storage business is more valuable than the moving business. I don't really believe the moving business benefits much at all from storage. As a secondary metric, I utilized a Price to normalized FCF (using maintenance not total capex) and the company looked very cheap on this metric when I wrote the article. Additionally, if you fair valued their book value of land acquired or what their storage portfolio would be worth on a P/sq ft basis, you get very attractive numbers, so there are many ways to skin the cat here.
To your last point, I believe they could be more efficient on truck utilization, but the CEO runs this conservatively and would rather take a lower, less efficient business that doesn't put itself into major harms way. It's not optimal, but it has resulted in tremendous past outperformance of the stock market. Also, I have not looked at that metric in detail as I generally look at revenue/EBITDA per truck, but I would make sure that storage assets are not included there.
I think the risk/reward isn't great - from here over the next 5 years UHAL probably outperforms the market marginally in my view. I cant say enough about the alignment, time horizon, and appropriate compensation at this business. Price matters as always. Thanks for your comment.
Totally agree with $45 being such a bargain, congrats! They’re incredibly FCF generative ex-growth capex. Imagine what a home-run this would be if they slowed/stopped growth capex in rental equipment and redeployed that cash differently, maybe thru dividends!
I’d encourage you look at Ashtead and read how they talk about their rental business. It has certainly helped me think about how to better evaluate rental companies. I say this because dollar utilization has been declining at U-Haul vs steady at Ashtead. I get the whole thing about management wanting to run the business conservatively, but I also wonder if the declining dollar utilization may be sign of deteriorating end market demand despite all the competitive advantages we agree U-Haul enjoys.
For this family, this is their livelihood. Coming to grips with reality maybe much harder for them than it is for us looking in from the outside.
I mean they kind of did slow down their truck growth (there is a lot of maint capex) and have plowed their growth capex majority into storage which I'd argue has been a quite solid ROI, although difficult to measure. I guess I am comfortable enough with management here that I think they know better than I do. I don't mind investing into storage with Joe vs. dividends. Storage to me is the bigger risk to the company than the moving business which I don't think will get much worse over time.
There is a ton of financial engineering which could be done here to help shareholders in the medium term, but I think that they just don't care which is refreshing. They'll do a little here and there, but ultimately just focused on maintaining and slowly growing over time.
I think the rental equipment business is a lot more cyclical, so I have not looked at Ashtead, but I know many people love the company and I could easily be wrong.
They've slowed rental equipment capex mainly because sourcing trucks from Ford and GM has been difficult. On the other side of supply-chain bottlenecks, I think they pick things back up again.
On cyclicality of rental businesses, yes, they're cyclical, but remember, these businesses produce a very healthy level of normalized FCF (ex-growth capex). Ashtead went from producing $500M in FCF in FY2019 to $2B in FY2021 when activity slowed simply by stopping growth capex. The beautiful thing about renting out equipment for construction is that it's typically late-cycle (i.e., management gets to see slow down in other parts of the economy way before they experience slow down in commercial builds, which allows them to management their fleet and working capital much better).
Ashtead has put up ~$2B in normalized FCF on avg. since 2019. On $30B market cap, that's a 15x P/FCF multiple, not bad for a business growing revenue ~20% over the last decade with significantly more re-investment runway than U-Haul.
Good article. The only point of agreement that I have with you is that U-Haul's scaled dealer infrastructure provides tremendous barriers to entry. I think that you take the data of declining movers rate a little too lightly. Movement is often a result of major life events like marriage, a new job, birth of children, and sometimes death. Americans have been moving from one residence to another less and less over the years as a result of various factors. Just to name two that quickly come to mind:
1. lower marriage rates: ~80% of all households were comprised of married couples in 1949 vs. ~50% as of 2020. The less these events take place, the less movement will be generated as a result of marriages.
2. increasing share of women participating in the workforce: ~30% of married households in the U.S. were dual-income vs. 50% today. Moving decisions become incrementally harder to make when they affect two as opposed to one person.
Also, I'm not sure that COVID provides good indication of what the future of movement/migration might be. As remote-work accommodations gain greater acceptance amongst employers, getting a new job becomes less of a reason to move residence.
U-Haul has been able to grow decently over the years due to share gain and rental penetration. On a forward basis, it's worth thinking about how much of these two levers they've already exhausted before being squarely correlated to the actual number of moves that take place in the U.S. To give you an example in another industry, Booking Holdings (NASDAQ: BKNG) historically grew 30-40% because a percentage of that growth came from (a) online penetration of travel (i.e., more people booking travel accommodations online), (b) OTA share gain in online channels (i.e., OTAs or Online Travel Agents like BKNG taking share from hotel websites as less people booked accommodations on Marriott.com and increasingly went to BKNG), and (c) BKNG share gain from other OTAs as the company acquired competitors. On top of all this, there was also the natural tailwind of more people traveling as average income levels rose. Today, BKNG has exhausted levers (a), (b), and (c). They're left with the raw demand for travel, which is still strong but definitely not 30-40% as history had it.
Another thing, I'm not sure that SOTP is appropriate here. If equipment rental and storage benefit from the synergies you articulated, which I tend to agree with, then separating both businesses may yield results different from what you're seeing presented today. For example, do they still enjoy lower CAC if both businesses are separated?
Lastly, many argue that the company deploys a scaled economies share model (you can track this by dividing rental revenue by gross equipment PP&E over the years - it's been declining, maybe intentionally?). I'm not sure that scaled economies shared is a sound formula to use in the face of structurally declining end-market demand. With ROIC of ~11% on avg. from 2012-2019, it's worth asking if that's an acceptable starting base from which to make projections. As businesses grow larger, the opportunity set shrinks. With the current capital allocation policy, I'm not sure that investors are being compensated for the risk of what's always an unknown future, though in U-Haul's case quite predictable.
Great article! Also, shares have moved nicely lately. Congrats if you participated in the move.
I appreciate the thought-provoking comments. I don't have great answers, but I'll think out loud in my response.
I made UHAL a 10% position with an average cost in the mid-to-high 40s and have kept trimming the entire way up, but it does remain a (shrinking) 9% position today (likely will be far lower next year for tax purposes). To your point, I have been selling it down as my price target has declined a bit from when I originally wrote this article largely due to rates/financing costs. I have it right around the low 70s today. When great companies have 50%+ upside with limited downside in my view I get pretty excited. When they have 10% upside I trim, but I will own this company for a long time unless the price gets well above my stretch target in the 80s. I don't believe the risk-reward is very attractive today. I think I was reasoned when I wrote the article, that I was not jumping up and down at the prices in April.
On moving trends: I think that long-term moving trends have puts and takes - for instance there are so many more people moving states to move to a lower-cost area. A lot of this is because of Covid which allows remote work. Maybe this is a headwind over 10 years from now, but I'd argue it's a tailwind today. The migration across states is rising - UHAL has a virtual monopoly here and these moves are incredibly profitable for them. I think they make more than 10x on a one-way move than they do in an in-town move. So even if the mix changes a bit this is incredibly powerful which I believe is a large part of the recent success. They have been dealing with declining rates for 40 years and it hasn't hurt them yet.
I like and agree with your example from Booking and I don't necessarily disagree it might be the case at UHAL - I do think they'll continue to gain share, but I also believe they can continue to take price which is something I don't think Booking can really do given the amount of competition it has, while UHAL has really none in moving. UHAL has not really taken much pricing in the past. If UHAL takes .5% of the moving market every year and can raise prices 3-5%, I am not going to be upset.
SOTP is controversial with this company, but frankly, it is easier to value in that manner. I don't think it will ever separate in actuality, but perhaps they do so synthetically. To all this above, the storage business is more valuable than the moving business. I don't really believe the moving business benefits much at all from storage. As a secondary metric, I utilized a Price to normalized FCF (using maintenance not total capex) and the company looked very cheap on this metric when I wrote the article. Additionally, if you fair valued their book value of land acquired or what their storage portfolio would be worth on a P/sq ft basis, you get very attractive numbers, so there are many ways to skin the cat here.
To your last point, I believe they could be more efficient on truck utilization, but the CEO runs this conservatively and would rather take a lower, less efficient business that doesn't put itself into major harms way. It's not optimal, but it has resulted in tremendous past outperformance of the stock market. Also, I have not looked at that metric in detail as I generally look at revenue/EBITDA per truck, but I would make sure that storage assets are not included there.
I think the risk/reward isn't great - from here over the next 5 years UHAL probably outperforms the market marginally in my view. I cant say enough about the alignment, time horizon, and appropriate compensation at this business. Price matters as always. Thanks for your comment.
Totally agree with $45 being such a bargain, congrats! They’re incredibly FCF generative ex-growth capex. Imagine what a home-run this would be if they slowed/stopped growth capex in rental equipment and redeployed that cash differently, maybe thru dividends!
I’d encourage you look at Ashtead and read how they talk about their rental business. It has certainly helped me think about how to better evaluate rental companies. I say this because dollar utilization has been declining at U-Haul vs steady at Ashtead. I get the whole thing about management wanting to run the business conservatively, but I also wonder if the declining dollar utilization may be sign of deteriorating end market demand despite all the competitive advantages we agree U-Haul enjoys.
For this family, this is their livelihood. Coming to grips with reality maybe much harder for them than it is for us looking in from the outside.
I mean they kind of did slow down their truck growth (there is a lot of maint capex) and have plowed their growth capex majority into storage which I'd argue has been a quite solid ROI, although difficult to measure. I guess I am comfortable enough with management here that I think they know better than I do. I don't mind investing into storage with Joe vs. dividends. Storage to me is the bigger risk to the company than the moving business which I don't think will get much worse over time.
There is a ton of financial engineering which could be done here to help shareholders in the medium term, but I think that they just don't care which is refreshing. They'll do a little here and there, but ultimately just focused on maintaining and slowly growing over time.
I think the rental equipment business is a lot more cyclical, so I have not looked at Ashtead, but I know many people love the company and I could easily be wrong.
They've slowed rental equipment capex mainly because sourcing trucks from Ford and GM has been difficult. On the other side of supply-chain bottlenecks, I think they pick things back up again.
On cyclicality of rental businesses, yes, they're cyclical, but remember, these businesses produce a very healthy level of normalized FCF (ex-growth capex). Ashtead went from producing $500M in FCF in FY2019 to $2B in FY2021 when activity slowed simply by stopping growth capex. The beautiful thing about renting out equipment for construction is that it's typically late-cycle (i.e., management gets to see slow down in other parts of the economy way before they experience slow down in commercial builds, which allows them to management their fleet and working capital much better).
Ashtead has put up ~$2B in normalized FCF on avg. since 2019. On $30B market cap, that's a 15x P/FCF multiple, not bad for a business growing revenue ~20% over the last decade with significantly more re-investment runway than U-Haul.
How did you calc revenue / transaction? I don't believe they disclose it explicitly..
they do not - you have to use their transactions chart and get a figure that is "close enough"