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Bear of the Day: Standard Parking (STAN)

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Jodi Mitchell may have been on to something with her 1970 hit Big Yellow Taxi.  If you remember the chorus, “They paved paradise to put up a parking lot.”   Well, parking lots have sprung up all over the U.S. over the years (often on sites of demolished buildings or open spaces) and are a necessity in our modern mobile world and the over 250 million registered vehicles now filling U.S. roads.

Operating them efficiently and profitably may be another song (and feat) all together. 

Standard Parking (STAN) is one of the largest parking companies in the States.  Since merging with Central Parking in 2012, Standard now operates more than 4,200 facilities with more than 2.2 million parking spaces in hundreds of cities across North America.

Their business also includes parking-related and shuttle bus operations serving more than 75 airports. USA Parking System, a wholly-owned subsidiary of Central Parking, is one of the premier valet operators in the nation with more four and five diamond luxury properties, including hotels and resorts, than any other valet competitor.

As much as this seems positive, future growth comes with its share of hurdles due to real estate costs and other factors.  Improvements in infrastructure and public transportations will also put pressure on earnings expansion. 

Let’s not forget that consumers are also still strained and now many of us are making less money with recent tax hikes and many are getting smarter with their commuting choices and/or working from home.  All of these factors among others may be serious stumbling blocks for professional parking companies like STAN, which operates a tight ship as it is.

Operating a national parking entity is not only a complex business, but it often comes with tight margins.

In fact, gross profit margin for Standard Parking is extremely low at 8.90%. It has decreased from the same quarter in 2012 according to their last earnings report and their most recent net profit margin reading of -1.27% seriously trails that of the industry average (special items threw them into the negative for the quarter).

Rocky earnings
STAN recently reported a significant increase in overall revenue (196.7 million versus expectations for 222 million) when compared with the same quarter a year prior, but non-GAAP earnings per share dropped significantly and GAAP earnings per share shrank to a loss (they included charges from the central parking acquisition).

The bottom line is that their 26 cent per share missed the Zacks Consensus Estimate of 27 cents; Standard Parking also missed Q3 2012 estimates as well by almost 15%.

While the company did guide between 75 and 85 cents for FY 2013 earnings, there still may be headwinds for shares to rally from here.  The company has reported a trend of declining earnings per share over the past two years and seems to be on the wrong end of the EPS growth curve. 

The potential is there, just not now
Once Standard Parking absorbs and integrates Central Parking into their normal operations, we should see earnings stabilize.  While analysts’’ outlooks aren’t so rosy for the coming quarters, 2014 may be the year the company gets back on track.

It’s not that easy to raise parking prices on already strained consumers…

In the meantime, it might be best to seek out better alternatives and look at some strong REITs for yield such as Starwood Properties (STWD - Free Report)

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