Feels good to be on top
U-Haul rents trucks and trailers, sells moving and packaging supplies, and also refills propane tanks. The company has the largest network of dealers and the largest fleet of rental trucks and trailers in North America — by a wide margin. This gives it a tremendous cost advantage by way of economies of scale.
U-Haul maintains a 50% share of the DIY equipment rental market; the next closest competitors — Penske Automotive Group, Inc. (NYSE:PAG) and Avis Budget Group Inc. (NASDAQ:CAR) — only have a 10% share each.
That was not always the case. Ryder — now owned by Budget — caused a lot of problems for U-Haul in the late ’80s/early ’90s. However, CEO Joe Shoen made a slew of prudent acquisitions and pricing decisions and eventually defeated the Ryder onslaught. U-Haul has remained vigilant against competitive threats and has maintained a strong lead in the industry for more than a decade.
Meanwhile, Budget and Penske Automotive Group, Inc. (NYSE:PAG) are more focused on other aspects of their businesses. Truck rentals account for only 6% of Avis Budget Group Inc. (NASDAQ:CAR)’s total revenue and the company plans to wind down the business over time. This is enabling U-Haul to pick up an even greater share of the market.
Penske Automotive Group, Inc. (NYSE:PAG) is also a half-hearted competitor. Penske’s truck rental segment is largely devoted to commercial trucks; the DIY equipment rental is a much smaller part of its business. Penske Automotive Group, Inc. (NYSE:PAG)’s real business is auto dealerships, and its real profit engine is parts and service revenue. DIY truck rental is almost an afterthought.
As a result of half-hearted competition, an enormous dealer network and fleet, and an ever-vigilant CEO, U-Haul is poised to remain on top for years to come.
Other businesses
In addition to U-Haul, AMERCO (NASDAQ:UHAL) owns self-storage real estate and a couple of insurance companies. The real estate is undervalued by the market, likely because it is under the umbrella of a company that owns a “real” business. If the real estate were spun off as a standalone REIT, it would fetch a much higher valuation.
One of the insurance companies, RepWest, is the insurance arm of U-Haul truck rentals. Oxford Life is a small life insurance arm that adds little to the company’s valuation.
Investment case
AMERCO (NASDAQ:UHAL) owns the preeminent DIY truck rental company in North America, as well as a large real estate portfolio. The balance sheet is flush with cash and the CEO owns a significant stake in the company. Despite all this, the stock trades at just 12 times trailing earnings.
It’s hard to go wrong buying the best company in the industry with a best-in-class CEO. Investors who buy in at 12 times earnings will likely receive a greater than 10% annualized return on their investment considering the hidden value of the real estate portfolio. Value-realizing actions, such as spinning off the real estate, could make the return even higher.
The article Buy the Best Company in the Industry originally appeared on Fool.com.
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