Public Storage (PSA) traded sharply lower yesterday–down nearly 19%–whacked by general market weakness and a downgrade from a Zack’s Research analyst. According to Zack’s, the downgrade was the result of PSA missing its third quarter estimate for funds from operations. The timing of this downgrade is odd as earnings were reported almost a month ago and the self-managed and self-administered Real Estate Investment Trust (REIT) specializing in self storage facilities had actually beaten consensus earnings estimates by 7%. Public Storage has an exceptionally strong balance sheet and the stock had held up extremely well up until yesterday. PSA closed on Monday a shade under $57 and is approaching its 52-week low of $52.52. This appears to be a justifiable entry point for this well managed company.

On November 7^th Public Storage reported EPS of $1.37 which was 9 cents better than analysts had expected. Zack’s analysts seemed to be more exuberant than most as they estimated $1.30 for funds from operations; the actual result was only $1.09 because of currency losses. This is a comment from the Zack’s blog on the company:

“Operationally, PSA’s properties continue to perform relatively well: 3Q same-store NOI and rental rates increased in most of the company’s US markets. The company has plenty of cash to actively pursue acquisitions in a market where pricing for self-storage facilities is getting much more attractive.”

A modest miss on funds from operations seems a flimsy reason for a stock to drop almost 20% in one day, but we see no other news or corporate events to blame. We view unexplainable and exaggerated price declines such as this as an buying opportunity. We have a Public Storage rated Undervalued and  like that the stock had, until yesterday, remained almost flat for the year in an otherwise brutal market environment. We believe that PSA has held up so well partly because of its low debt exposure, as the company has generally issued preferred stock in lieu of taking on debt. Right now companies that shun debt and continue to enjoy solid business growth (especially a REIT) should be priced at a premium.