Today’s Zacks Bull of the Day was a company that operates gasoline stations and convenience stores across the US Midwest, tightly controls its own supply and distribution channels and owns the majority of its own assets.
Our Bear of the Day is in the same industry, but that’s pretty much where the similarities end. TravelCenters of America (TA - Free Report) operates much larger fuel sales centers, primarily along the nation’s interstate highways. Their target consumer based skews more toward professional long-haul truckers rather than individual consumers.
While Casey’s collection of smaller, efficient, country-store themed service stations - mostly in small towns in which they enjoy a loyal following – TA outlets are more like huge travel supermarkets that also offer full-service restaurants, vehicle maintenance and repair services. The mix of products sold leans much more toward national brands of snacks and beverages rather than house-brands.
TA also operates stand alone restaurants under the (somewhat puzzling) name “Quaker Steak and Lube.”
The difference between the two approaches is evident in the two companies’ relative share price performance YTD, with Casey’s doubling the returns of the S&P 500 and TA drastically underperforming – down nearly 28% so far in 2019.
(Note: the share prices above are in constant dollar terms based on the number of shares currently outstanding. TA executed a reverse 5 for 1 split at the beginning of August that raised the share price to make it more attractive to investors – and less like a penny stock – while reducing the number of shares outstanding from 40.4 million to 8.1 million.)
Though it’s probably the more recognizable brand name – especially for those outside the Midwest – TA is a fairly small company with a current market cap of just $115 million. The lagging price performance is the result of poor earnings results and reduced expectations going forward. In the most recent quarter, TA missed the Zacks Consensus Earnings Estimate by a whopping 82% - earning just $0.15/share versus an expected $0.85.
Estimates for full year 2019 now call for a net loss of ($1.24)/share, down from a smaller loss of just ($0.13)/share 90 days ago. Full year revenue estimates of $6 billion are almost 10% lower than 2018 sales and the outlook continues to deteriorate into 2020 when revenues are expected to be $5.94B.
In contrast, Casey’s is expected to grow revenues 5% in 2019 and an additional 9% in 2020, to $9.8B and $10.7B, respectively.
High costs, low margins and a heavier debt load contribute to those disappointing results. It’s considerably more expensive to run the huge full-service roadside centers, yet the prices of the goods sold don’t rise commensurately. In fact, the deals TA has with many national trucking chains means stiffer price competition for fuel, resulting in an average margin of $0.153/gallon – 25% lower than Casey’s enjoys.
TA also owns significantly less of its own assets and has a debt/capital ratio of 81% - higher than the industry average of 64% and much higher than the ultra-lean Casey’s at 48%.
It makes sense to educate yourself about opportunities in “boring” industries like service stations - which can be very profitable. Casey’s is using a unique product mix, financial discipline and sensible growth plans and is a clear leader in the segment. TravelCenters of America is just, well…boring.
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