The road trip is one of the most popular American pastimes. Since the invention of the automobile, we have developed an entire culture around cars. Traveling across the country inspired generations of Americans and popularized colloquialisms like "get your kicks on Route 66."
When I was growing up, my vacations centered on packing up the car and hitting the open road. The destination was almost secondary to the adventure of the trip itself. I loved the changing landscapes, roadside diners and cute little towns so much that I made over-the-road truck driving my career for a time.
Driving for a living meant that my home was wherever I parked for the night. I needed space to park, fuel, somewhere to eat, a shower, and a place to buy basic necessities. The rumble of idling engines and the smell of diesel fuel were oddly comforting.
You've probably already guessed that I'm talking about the truck stop.
There are more than 6,000 truck stops across the United States, but the industry is basically an oligarchy made up of three major companies: Pilot Flying J, Love's and TravelCenters of America ( TA ) , which also owns Petro. Most trucking companies deal only with the major chains due to contractual deals made for their fleets to save on fuel costs, the industry's biggest expense.
Flickr/marioanimaTravelCenters of America is the largest publicly traded truck stop chain.
Both Love's and Pilot Flying J are privately owned, making TravelCenters of America, known as TA, the largest publicly traded truck stop chain.
The trucking industry is often seen as a leading economic indicator for investors, and the numbers are beginning to turn around. Freight volumes rose 1.7% in August and 2.7% in September mostly due to the growing strength in the manufacturing sector.
The hangover from the electronic hours of service logs enacted by the Federal Motor Carrier Safety Administration has hampered preventing growth, but as drivers pick up on the new technology, wages could rise, spurring a wave of growth to keep up with rising demand -- which would translate directly into more business for TA.
Hospitality Properties Trust ( HPT ) spun off TA in 2007 but retains a controlling interest, with 8.6% of outstanding shares and a lease agreement in which real estate is owned by HPT and is leased back. TA operates 247 locations in 42 states and Canada, and all but 30 locations are leased properties.
In anticipation of more trucks being converted from diesel to natural gas, TA has begun a partnership with Shell (NYSE: RDS) to install natural gas fueling lanes at as many as 100 locations. The first LNG lanes are expected to be operational in early 2014.
When it comes to services, including Iron Skillet restaurants or the variety of goods sold in its stores, TravelCenters of America remains the top choice for truckers. About 20% of TA's revenue is derived from non-fuel sources, a category that saw growth of 9% for the second quarter.
A soft economic environment caused TA to miss its most recent earnings figures but may have also sent the stock into value territory. With a price-to-earnings (P/E) ratio of around 11, the company looks cheap. With earnings per share ( EPS ) expected to grow more than 200% next year to around $1.07, this gives the company an attractive price-to-earnings growth ( PEG ) ratio of 0.7.
Even with headwinds like leasing obligations and fuel price volatility, investors have been betting on the U.S. recovery being real -- TA's stock price is up about 65% this year.
The case for increased pay and more drivers is subject to continued economic demand, which could be damaged by weaker-than-expected GDP figures. Fuel price volatility could also cause fluctuations in earnings.
Actions to Take --> The catalyst of increasing freight volumes should keep TA climbing higher. Based on expected future earnings, my price target is about $12.75, a 60% gain.
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