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Value

TravelCenters of America LLC (TA - Snapshot Report) posted its seventh straight positive earnings surprise in the second quarter, backed by capital intensive improvements in existing properties, favorable fuel margins and new acquisitions.

This travel center operator remains extremely cheap with a forward P/E of 4.6x, a price-to-book (P/B) multiple of just 0.5 and a price-to-sales (P/S) ratio as low as 0.02. Moreover, the strong quarter led to positive revisions in earnings estimates, underscoring TA’s Zacks #1 Rank (Strong Buy).

Strong Second Quarter

On August 7, TravelCenters of America reported second-quarter earnings per share of $1.04, beating the Zacks Consensus Estimate by more than 22%. The result also rose 4% from last year’s $1.00 per share.

Net revenue dipped 2.6% year over year to $2,041.5 million, driven by a 4.1% decline in fuel revenue, offset in part by a 5.8% increase in non-fuel revenues. During the quarter, fuel sales volumes declined by 0.6 million gallons or 0.1%.

Total gross margin expanded 120 basis points to 14.4% compared to last year, due mainly to travel centers acquired or opened since April 1, 2011, increased fuel margin per gallon, increased customer spending for nonfuel products and improved services in TA’s travel centers. EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) increased 13.5% year over year to $94.1 million.

Earnings Estimates on the Rise

In the last 30 days, all three estimates for 2012 moved upward, propelling the Zacks Consensus Estimate by 26.2% to $1.30. This reflects a year-over-year growth of 33.0%. The Zacks Consensus Estimate for 2013 saw 2 of 3 estimates advance, pushing the Zacks Consensus Estimate up by 3.2% to $1.28.

Stock is Cheap

TravelCenters’ valuation reveals that the stock is largely undervalued. The company currently trades at a forward P/E of 4.6x, significantly below the benchmark of 15.0x for a value stock. Other ratios, P/S and P/B, remain as low as a negligible 0.02 and 0.5, respectively, well under the cut off of 1.0 and 3.0 for a value stock.

Furthermore, shares have gained nearly 27% since June 4. In addition to being a value stock, TravelCenters remains attractive given its earnings growth prospects.

Founded in 1992, TravelCenters of America is based in Westlake, Ohio. Engaged in operating travel centers along the United States interstate highway system, the company operates 240 travel centers in 41 U.S. states and in Canada, of which 170 operated under the brand TA and 70 as Petro Stopping Centers. The company’s centers sell gasoline, operate restaurants, provide truck repair facilities, operate stores and offer other services to travelers.

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