TravelCenters Of America
) recently priced a stock offering of 6.5M shares at $9.25 and the
stock has suffered since. Still, analysts have been increasing
estimates for this year and next and the stock is a Zacks Rank #1
(Strong Buy) and it is the Bull of the Day.
Strong Auto Sales
For the past several months, US auto sales have shown consistent
growth. The sequential growth has small, but the year over year
growth was impressive. There was a big drop off in September as new
models hit the showroom floors, but as we rolled into the November
1 sales numbers, the growth returned.
This page from the
Wall Street Journal
breaks down auto sales in a fairly high level of detail. Its
interesting stuff no doubt, but the overwhelming idea that you
should get from scanning that page is that people are buying new
TravelCenters of America operates travel centers primarily along
the US interstate highway system. It offers diesel fuel and
gasoline; and operates full service restaurants primarily under the
Iron Skillet and Country Pride brand names. As of August 12, 2013,
it operated and franchised approximately 500 travel centers in 42
states and in Canada under the TravelCenters of America, TA, and
Petro Stopping Centers brand names. The company was founded in 1992
and is headquartered in Westlake, Ohio.
Beat and Offer Stock
You probably have heard of beats and raises, but how about beat and
stock offerings? Well that just happened for TA, as they recently
beat estimates and then a few days later offered 6.5M shares at
$9.25 per share, raising roughly $60 million.
The company reported earnings of $0.56 on November 4, and that was
$0.12 ahead of the Zacks Consensus Estimate for a 27% positive
earnings surprise. This beat caused investors to bid up shares of
the company, which moved higher by 15% during the session following
A few days later the beat, the secondary hit, and with roughly 30M
shares outstanding at the time, the 6.5M shares being added is a
significant dilution of present ownership. A large portion of the
proceeds of the offering will go towards paying for the acquisition
of Girkin Developments's interest 31 convenience stores in Kentucky
TA Sees Estimates Moving Higher
As we look back over the last few months, we see that analysts are
starting to move their estimates higher. The Zacks Consensus
Estimate stood at $0.34 for August through October, but that was
increased sto $0.42 in November following the recent beat and has
now ticked higher to $0.45 in the month of December.
The Zacks Consensus Estimate for 2014 also saw a bump higher.
Unlike the 2013 estimate, the 2014 number didn't budge until
recently. The 2014 Zacks Consensus Estimate was $1.06 for four
months, and is not at $1.20.
One this I look for is a big implied earnings growth rate. TA has
just that, 166% in fact.
TA has a very solid valuation picture. The forward PE of 19.6x is
still well below the 26x industry average. The price to book
multiple of 0.7x is far below the 4.5x industry average and the
price to sales multiple is also below the industry average. As I
look to the margin analysis, I see that TA has a 0.2% net margin
compared to a 4.7% industry average. TA is expected to see 5%
topline growth next year, which is below the 7.7% industry average,
and growth of 166% in EPS compared to 24.5% EPS growth for the
The price chart for TA shows that you need to have some degree of
resolve to buy this stock. While the most recent quarter was a beat
and a 15% increase then followed by the stock offering which has
brought the stock back down, one's eye is drawn to the large plunge
the stock took back in the summer. As the impact of the offering is
absorbed, the growth in revenue and earnings due to 31 store
additions will have a positive impact over the next few quarters.
With some and improved results, TA could see multiple expansion and
that would dramatically increase the price of the stock.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor
in charge of the
Run Investor service
, a Buy and Hold service where he recommends the stocks in the
Brian is also the editor of
Breakout Growth Trader
a trading service that focuses on small cap stocks and also carries
a risk limiting strategy. Subscribers get daily emails along with
buy, and sell alerts.
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