Daily Gains Letter

This High-Profit Play Could Rev up Your Stalling Portfolio

By for Daily Gains Letter | Feb 20, 2013

DL_Feb_20_2013_JohnThe crippling recession has made it more difficult than ever to foresee where the economy is headed and where unpredictable investors are going to send the stock market.

Some stocks respond positively when the economy is weak. Most do well when the economy is chugging along. Others start to perform well when the economy begins to recover.

Since the start of the Great Recession, North Americans have been clutching their wallets a little tighter. That does not bode well for firms that rely on discretionary income and consumer confidence.

Despite the economic strain of high gas prices, North Americans continue to take to the highways. On the commercial front, the trucking industry is the driving force behind the U.S. economy, with as many as 750,000 interstate motor carriers.

Until we can replace “fill ’er up” with “beam me up,” we’ll continue to pay whatever it costs at the pumps.

TravelCenters of America LLC (NYSE/TA) operates and franchises travel centers primarily along the United States interstate highway system. The company’s network of more than 235 interstate highway travel centers in 41 U.S. states and Ontario, Canada is one of the largest in North America. Its “TCA” and “Petro” locations provide fuel, sit-down restaurants, fast food restaurants, convenience stores, and lodging. With professional truck drivers as its main customers, some outlets also offer “trucker-only” services, including: laundry and shower facilities, TV rooms, and truck repair services.

The company has a market cap of $222 million, $102 million in cash, and $96.4 million in long-term debt. Currently trading near $7.70 per share, TravelCenters has a book value of $12.33 per share.

On November 6, TravelCenters announced that third-quarter revenues slipped 2.5% year-over-year to $2.0 billion; net income was down 8.6% at $18.9 million, or $0.66 per share. Year-to-date revenues were up marginally at $6.1 billion; net income for the period was up 33.0% at $34.6 million, or $1.20 per share. (Source: “TravelCenters of America LLC Announces Third Quarter 2012 Results,” BusinessWire November 6, 2012, last accessed February 19, 2013.)

The company’s 2012 third quarter earnings before interest, taxes, depreciation, amortization, and rent (EBITDAR) was $83.6 million, an increase of $600,000 or one percent from the 2011 third quarter. This represents the 11th consecutive quarter in which the company’s EBITDAR exceeded that of the prior year.

TravelCenters attributes its 2012 improvements to capital investments made in existing properties, favorable fuel margins, ongoing improvements in customer service delivery, and a strong acquisition strategy.

For the nine months ended September 30, 2012, TravelCenters made capital investments of $94.2 million for improvements to existing travel centers and $17.4 million to improve the travel centers it acquired during 2011 and 2012.

During the nine months ended September 30, 2012, the company purchased nine travel centers and acquired the business of a sublease tenant franchisee for $41.2 million. Subsequent to the end of the third quarter, it entered into agreements to acquire three more travel centers for about $14.0 million.

In October, the company announced that it was an easy favorite amongst truck drivers across a wide range of services in the sixth annual “Voted Best” survey by Overdrive Magazine. (Source: “TravelCenters of America Again Dominates Driver Satisfaction Survey,” TravelCenters of America LLC web site, October 15, 2012, last accessed February 19, 2013.)

In early January, the company announced a $100 million public offering of unsecured senior notes. The company expects to use the net proceeds for general business purposes, including funding acquisitions, capital improvements to its existing travel centers, and other expansion activities. (Source:, “TravelCenters of America LLC Prices $100 Million of 8.25% Senior Notes Due 2028,” BusinessWire January 8, 2013, last accessed February 19, 2013.)

DGarticlesChart courtesy of www.StockCharts.com

TravelCenters’ share price was bullish between October 2011 and March 2012; subsequently, it traded in a tight range for the remainder of the calendar year—with support near $4.00 and resistance near $5.60.

All of that changed in mid-January when the company’s share price broke above its resistance level on increased volume and growing momentum. The company’s 50-day moving average (MA)crossed above its 200-day MA—a bullish indicator. Over the last two weeks, TravelCenters’ share price has been in a consolidation mode, hovering in a very tight range with a new support level at $7.60.

The company will be announcing its fourth-quarter and fiscal 2012 results on Wednesday, March 13 before the markets open. Strong fourth-quarter and full-year results, and an encouraging outlook could see the company’s share price break out to the upside.

Over the last number of years, the economic slowdown has negatively impacted smaller, independent travel centers that, thanks to strong fundamentals, TravelCenters was able to snap up. In the first 10 months of 2012 alone, the company purchased 12 travel centers; it expects to acquire 10–15 more in 2013.

TravelCenters is a fundamentally robust company, with a strong acquisition and capital improvement strategy. Further, the company has a strong international footprint and is the only publicly traded company operating in an area with huge financial and regulatory barriers to entry. Plus, TravelCenters recently broke above a long-tested resistance level.

Going forward, the company expects to report year-over-year growth in full-year 2012 net income. And, thanks to lower fuel costs, improving margins and economic conditions, the company expects to report continued growth. That points to both short- and long-term opportunities for investors.

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