Monday, May 11, 2015

Investment opportunity in TravelCenters of America (NYSE:TA)

Some background information provided by the company to its investors:

TravelCenters of America (NYSE:TA) is the largest publicly-traded operator/franchisor of full-service highway Refuel-Replenish-Refresh (RRR) travel centers in the United States.

As of 31 March 2015, the Company's business included 251 travel centers, 175 of which were operated under the "TA" brand name and 76 of which were operated under the "Petro Stopping Centers" brand name located in 43 states.

TA and Petro Stopping Centers have the largest sites on average, with full-service offerings that include diesel and gasoline fuel, truck maintenance and repair, full-service and fast food restaurants, large convenience stores, car and truck parking and other services dedicated to serving professional truck drivers and highway motorists.

As of 31 March 2015, TravelCenters of America also operated 60 convenience stores with retail gasoline stations, primarily under the "Minit Mart" brand name.

When the US market opened on Thursay 7 May 2015, TA share price hit a 52-weeks record high of US$18.10 right after it announced its first quarter result. Surprisingly, right after the stock price hit this 52-weeks high, it slumped down all the way to close at US$14.98 on Friday 8 May 2015, wiping out more than one month previous price gain since its rally from March 2015 onwards.

Graph snapshotted from Google Finance

What's going on? I think The Specialist has written a nice article to explain about the situation in Seeking Alpha website titled "Oops, TravelCenters Of America Did It Again - Buy Time?" and I am pretty agreeable with his view. I'm not going to repeat the content in his article here, you can click the link and read his report if you are interested.

The diagrams about TA below are taken from NASDAQ Stock Market website.

The chart above shows that TA's revenue (US$1.407 billion) dropped a lot in first quarter of fiscal year 2015, compared with previous years in 2014 and 2013.

However, its EPS (US$0.41) recorded in the quarter increased a lot compared with previous years in 2014 and 2013. This means its profit margin actually jacked up a lot, which is the key argument point of The Specialist in his article.

When we look further to more older data...

we'll find out that TA actually used to make lost in first quarter almost every year, and its earning has a cyclical pattern which is normally weak during the 4th and 1st quarter, and will turn strong during the 2nd and 3rd quarter.

From here, we observed that:
  • TA's result in Q1-2015 is actually very impressive. It is a hefty 40 fold from previous year, not to mention traditionally it is "suppose" to make lost during this quarter.
  • Barring unforeseen circumstances, we expect TA's result in Q2 and Q3 will be better than Q1, as that is its cyclical trend for years.
In fact, we can see the institutional investors have more buying than selling of TA during this price drop after it hit 52-weeks high.

One month ago, Zacks Equity Research has written a report explaining the 3 Reasons Value Stock Investors Will Love TA, and I believe the points are still intact as of today.

So, is this really a great investment opportunity given by its price drop? You can continue to find out more facts and figures about it.

Disclaimer: This article is intended for sharing of point of view only. It is not an advice or recommendation to buy or sell any of the mentioned stock counters. You should do your own homework before trading in the stock market.


Voyager8 said... Reply To This Comment

Just released:

The TravelCenters of America's (TA) CEO Tom OBrien on Q1 2015 Results - Earnings Call Transcript.

Voyager8 said... Reply To This Comment

Here is another article about TA written by Alpha Gen Capital for your reading:

TravelCenters Of America Has Significant Room To Run

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