Executive Summary / Key Takeaways

• U-Haul's second quarter earnings collapsed 29.7% despite 3.8% revenue growth, driven by a $107 million year-over-year cost increase from fleet depreciation and disposal losses—a temporary repricing crisis that obscures underlying business strength, as evidenced by 6% EBITDA growth in the core Moving and Storage segment.

• The self-storage market has devolved into a "slugfest" with REIT competitors using aggressive discounting, forcing U-Haul to pivot from density to geographic footprint expansion, adding 6.7 million square feet while deliberately culling delinquent tenants to protect long-term pricing power.

• U-Box portable storage is gaining undeniable market share with 16% growth, leveraging U-Haul's 25,000-location network and cost advantages to pursue a target size matching the entire current U-Haul business, creating a potential second growth engine.

• Management is accelerating dealer network expansion beyond historical pace, exceeding 25,000 locations for the first time, with Chairman Joe Shoen expecting "visible numbers by May" as this creates unmatched customer accessibility that competitors cannot replicate.

• The stock trades at just 1.67 times sales and 6.17 times operating cash flow, while real estate assets marked at cost could support an additional $2 billion in borrowing, suggesting a significant valuation disconnect that management explicitly acknowledges.

Setting the Scene: The Integrated Moving and Storage Ecosystem

U-Haul Holding Company, founded in 1945 in Reno, Nevada, built its foundation on a simple premise: equipment sharing reduces waste while serving the do-it-yourself mover. This sustainable model evolved into North America's dominant integrated moving and storage platform, generating $5.83 billion in trailing twelve-month revenue through three segments that function as a cohesive ecosystem. The Moving and Storage segment (96% of revenue) operates 186,000 trucks, 128,000 trailers, and 876,000 self-storage units across a network that recently eclipsed 25,000 locations for the first time in company history.

This network density creates a moat that competitors cannot easily replicate. While Avis Budget (CAR)'s Budget Truck Rental competes on truck quality and Penske offers newer fleets, neither provides the geographic ubiquity that allows U-Haul customers to pick up equipment within minutes of their home. The integration extends beyond trucks to portable U-Box containers, moving supplies, propane, and insurance products, creating multiple customer touchpoints that increase lifetime value. The company's digital transformation—uhaul.com marketplace, Truck Share 24/7 mobile app, and Skip-the-Counter rentals—enhances convenience while reducing labor costs, a critical advantage in an inflationary environment.

The industry structure reveals why this matters. The DIY moving market is fragmented but consolidating, with U-Haul holding dominant share while facing quality-focused competition from Penske and Budget. The self-storage market, valued at over $50 billion, is dominated by REITs like Public Storage and Extra Space Storage that operate pure-play facilities without moving integration. U-Haul's hybrid model captures customers at the moment of moving need and converts them into storage renters, a conversion funnel that standalone REITs cannot access. This positioning becomes particularly valuable during housing market transitions, as consumers downsizing or relocating require both services simultaneously.

Technology, Products, and Strategic Differentiation

U-Box represents U-Haul's most significant product innovation, with revenue growing 16% in the first quarter and $12 million in the second quarter. The portable storage container business leverages the company's existing infrastructure to create competitive advantages that pure-play competitors like PODS cannot match. U-Haul can deliver multiple containers simultaneously, offer self-delivery options, and provide access to its 25,000-location network across every state and province. This cost structure advantage, combined with the ability to store containers in existing self-storage facilities, positions U-Box to become what Vice Chairman Sam Shoen describes as "as big as U-Haul is today."

The strategic significance extends beyond revenue growth. U-Box containers currently show occupancy rates that are "a fraction" of traditional self-storage, indicating massive untapped pricing power as utilization increases. Each container placed in storage generates recurring revenue with minimal incremental cost, creating a high-margin annuity stream. The expansion requires capital investment in warehouse space and delivery equipment, but the returns compound as containers remain in storage for months or years. This business model shift from transactional rentals to recurring storage revenue diversifies cash flows and reduces cyclicality.

The dealer network expansion to 25,000 locations reflects a deliberate strategy to increase market penetration in underserved communities. Adding nearly 1,000 locations in twelve months creates accessibility that drives transaction volume, particularly for local moves where convenience outweighs price sensitivity. Chairman Joe Shoen's expectation of "visible numbers by May" suggests the network is reaching critical mass where density drives organic growth. Each new dealer location requires minimal capital investment, expanding the addressable market and improving asset utilization across the entire fleet.

Financial Performance: Depreciation Crisis Obscures Operational Gains

The second quarter of fiscal 2026 reveals a stark divergence between reported earnings and operational reality. While net earnings plummeted 29.7% to $197.4 million, Moving and Storage segment EBITDA actually increased 6% ($32 million), driven by revenue growth across all product lines. The $107 million year-over-year cost increase stems entirely from fleet depreciation and disposal losses, not operational deterioration. This distinction is crucial because depreciation is a non-cash accounting charge that will normalize as fleet acquisition costs decline, while EBITDA growth reflects genuine business momentum.

The depreciation crisis originates from COVID-era supply chain disruptions that forced U-Haul to pay premium prices for cargo vans and trucks. Vehicles purchased in the last two years cost significantly more, while resale values have declined as OEMs normalize pricing. The company reported a $38 million disposal loss in Q2 versus an $18 million gain in the prior year, a $56 million swing that directly impacts reported earnings. Management responded by accelerating depreciation on remaining units, a conservative accounting choice that front-loads pain but creates cleaner comparisons going forward. CFO Jason Berg estimates normalized annual depreciation of $700-750 million once the fleet stabilizes, compared to current run rates exceeding $1 billion.

Self-storage revenue increased 10% ($21.8 million) despite same-store occupancy declining 350 basis points to 90.5%. This apparent weakness actually reflects strategic strength: 220 basis points of the decline came from removing delinquent tenants to free up space for paying customers. Average revenue per occupied foot increased 4.9%, demonstrating pricing power even in a competitive market. This capital efficiency demonstrates management's ability to generate high returns on real estate investment even while competitors struggle with oversupply.

The insurance segments tell divergent stories. Property and Casualty revenue grew 14.1% with earnings up 24.1%, directly correlated to moving transaction volume and providing a natural hedge against fleet utilization fluctuations. Life Insurance revenue declined 3.6% with earnings collapsing 60.5% due to policyholder lapses exceeding sales and higher interest credited to policyholders. While the Life segment represents only 3% of total revenue, the drag on consolidated earnings highlights the value of focusing capital on the core Moving and Storage ecosystem.

Capital Allocation and Liquidity: Investing Through the Cycle

U-Haul's capital intensity is both a challenge and a strategic weapon. The company invested $1.325 billion in rental equipment during the first six months of fiscal 2026, an increase of $169 million year-over-year, while real estate investment decreased $208 million to $526 million. This shift reflects management's response to OEM pricing dynamics—buying fewer box trucks as costs remain elevated while accelerating storage development where returns are more predictable. The negative free cash flow of $2 billion trailing twelve months is not a sign of distress but a deliberate choice to invest in growth during a period of market dislocation.

Liquidity remains robust with $1.08 billion in cash and $465 million available under credit facilities, providing $1.545 billion in total liquidity for the Moving and Storage segment. The insurance subsidiaries hold separate assets that are generally unavailable to the parent, creating a natural firewall that protects core operations from insurance reserve volatility. Management's stated goal of maintaining net debt to EBITDA below five times provides significant borrowing capacity, with Berg noting the company could "easily go out with the assets that we have and borrow another $2 billion against real estate."

This borrowing capacity reveals a hidden asset. The real estate portfolio is carried at historical cost, not market value, meaning the balance sheet significantly understates asset values. The ability to borrow an additional $2 billion implies market value exceeds book value by a substantial margin, providing a margin of safety that is not reflected in the stock price. The company's asset base can thus support continued investment even if operating cash flow temporarily declines, reducing financial risk during the depreciation cycle.

Outlook and Execution: Navigating Normalization

Management's guidance provides a roadmap for earnings normalization. Chairman Joe Shoen anticipates the depreciation "pounding is likely to continue for some time" as OEMs adjust pricing, but CFO Berg expects box truck depreciation to peak toward the end of fiscal 2026 or early fiscal 2027. Cargo van depreciation may flatten by end of fiscal 2026 as model year 2026 purchase prices decline. This timeline is significant as it sets expectations for when earnings will inflect, with the stock likely to reprice higher as the depreciation headwind abates.

The dealer network expansion is approaching an inflection point. Shoen's expectation of "visible numbers by May" suggests the 1,000 new locations will start generating measurable transaction volume increases within six months. This timing coincides with the depreciation peak, potentially creating a powerful earnings recovery narrative. The strategy leverages U-Haul's current "overfleeted" status, allowing equipment redistribution to new locations without incremental capital investment, improving utilization across the network.

U-Box growth targets remain aggressive. Sam Shoen's conviction that U-Box "couldn't be as big as U-Haul is today" implies a multi-billion dollar revenue opportunity from a business that currently represents a fraction of sales. The 16% growth rate may accelerate as warehouse capacity expands and container inventory increases. U-Box revenue is recurring and higher-margin than truck rentals, potentially transforming the company's earnings quality over time.

Consumer behavior trends present a mixed picture. Shorter average move distances indicate consumer anxiousness, which could pressure one-way rental revenue. However, increased consumer optimism and willingness to accept rate increases when value is communicated effectively suggest pricing power remains intact. The housing market recovery, while positive for sentiment, is not expected to provide a visible boost to one-way moves, indicating management's guidance is not dependent on macro tailwinds.

Competitive Positioning: Moats Under Construction

U-Haul's competitive advantages are strengthening despite near-term earnings pressure. The 25,000-location dealer network creates accessibility that Budget Truck Rental and Penske (PAG) cannot match, particularly for local moves where convenience drives decision-making. This density allows U-Haul to maintain market share even when competitors offer newer fleets, as evidenced by the company's ability to increase revenue per transaction despite declining overall transactions.

In self-storage, U-Haul competes differently than REITs. While Public Storage and Extra Space Storage focus on depth in premium markets, U-Haul pursues breadth, leveraging its existing presence in secondary and tertiary markets where truck rentals create natural customer acquisition channels. This strategy avoids the "slugfest" in oversupplied urban cores while capturing underserved demand. The REITs' practice of offering move-in rates "massively below their move-out rates" offends customers and creates churn that U-Haul can exploit with transparent pricing.

U-Box is "making their life a living hell" for competitors, according to Sam Shoen. The ability to deliver multiple containers, offer self-delivery, and leverage 25,000 locations creates cost and convenience advantages that PODS and other portable storage providers cannot replicate. As U-Box gains market share, it creates a virtuous cycle: more containers in storage increase facility utilization, spreading fixed costs and improving margins across the network.

Risks and Asymmetries

The primary risk is that depreciation headwinds persist longer than management anticipates. If OEMs continue pricing ICE vehicles at elevated levels to subsidize electric vehicle programs, resale values may decline further, extending the earnings trough beyond fiscal 2027. This would pressure the stock's valuation multiples and could force management to reduce fleet investment, ceding market share to competitors with newer trucks.

Self-storage competition could intensify beyond current levels. If REITs maintain aggressive discounting despite rising interest rates, occupancy and pricing pressure could spread from urban to suburban markets, impacting U-Haul's expansion strategy. The company's deliberate reduction of delinquent tenants, while strategically sound, temporarily depresses occupancy metrics that investors monitor, creating potential for negative sentiment.

Consumer behavior poses a binary risk. If economic uncertainty increases and move distances shorten further, one-way rental revenue could decline more than anticipated. Conversely, if consumer optimism translates into increased mobility, transaction volume could rebound faster than expected, accelerating earnings recovery. The company's performance is levered to housing turnover, which remains depressed despite potential recovery.

Tariff proposals present an underappreciated risk. While management notes construction costs are gradually declining, tariffs on building materials could reverse this trend, increasing the cost of the 6.5 million square feet currently under development. This would reduce returns on real estate investments and pressure free cash flow further.

Valuation Context: Asset Value Versus Earnings

At $52.65 per share, U-Haul trades at a significant discount to asset value and peer multiples. The price-to-sales ratio of 1.67x compares favorably to Public Storage (PSA) at 10.07x and Extra Space Storage (EXR) at 8.83x, despite U-Haul's integrated model providing diversification that pure-play REITs lack. The enterprise value to EBITDA multiple of 9.91x is below historical norms for asset-heavy businesses, particularly given the company's market leadership.

Operating cash flow of $1.45 billion over the trailing twelve months translates to a price-to-operating-cash-flow ratio of 6.17x, indicating the market is pricing the stock as a declining asset despite positive underlying trends. The negative free cash flow of $2 billion reflects growth investment, not operational weakness, and should normalize as depreciation peaks and real estate development stabilizes at 4.5-6 million square feet annually.

The balance sheet provides substantial hidden value. With debt-to-equity of 1.00x and the ability to borrow an additional $2 billion against real estate, the company has significant untapped liquidity. The real estate portfolio's market value likely exceeds book value by a substantial margin, as properties acquired decades ago are carried at historical cost. This asset base supports the current valuation even if earnings remain pressured, creating downside protection for investors.

Conclusion: Temporary Pain, Permanent Gain

U-Haul's investment thesis hinges on distinguishing between temporary fleet repricing and permanent network expansion. The $107 million quarterly depreciation headwind represents an accounting adjustment to reflect higher acquisition costs and lower resale values, not a deterioration of the underlying business. In fact, the core Moving and Storage segment grew EBITDA by 6% while expanding its dealer network to 25,000 locations and increasing U-Box revenue by double digits.

The strategic response to self-storage competition—focusing on breadth over depth, culling delinquent tenants, and leveraging the moving funnel for customer acquisition—positions U-Haul to capture market share as oversupplied REITs struggle with occupancy pressure. U-Box's potential to match the size of the legacy truck rental business provides a growth trajectory that is not dependent on housing market recovery or consumer mobility trends.

The stock's valuation at 1.67 times sales and 6.17 times operating cash flow reflects market skepticism about earnings normalization. However, management's guidance on depreciation peaking in late fiscal 2026 or early 2027, combined with the dealer network's expected contribution by May 2026, creates a clear catalyst timeline. The asset-rich balance sheet and untapped borrowing capacity provide downside protection while the company invests through the cycle.

The investment case will be decided by two variables: whether depreciation normalizes as management expects, and whether U-Box growth can accelerate to offset any lingering weakness in traditional truck rentals. If both trends align, the current earnings crush will prove to be the entry point for a business with an expanding moat and underappreciated asset value.