Travel centers operator TravelCenters of America Inc. (TA) offers truck repair and maintenance, roadside services, as well as quick service restaurants, travel stores, and various other customer amenities in the United States and Canada. Of late, investors have been paying more attention to travel stocks as more than 50% of the adult population in the United States have been fully vaccinated against the coronavirus. TA’s stock has surged 108.1% over the past year and 26.6% over the past three months. The ongoing fast-paced vaccination and pent-up demand for travel should bode well for the stock.
The company’s plans to enhance travel center experiences and its recent strategic partnership with Nikola Corporation (NKLA) should drive significant growth in its truck and retail services business. As it continues to focus on improving customer experiences through reimagined restaurant offerings and upgradations, I believe TA is poised to soar in the coming months.
Here is what I think could shape TA’s performance in the near term:
Strategic Partnership
Last month, TA agreed to collaborate with NKLA’s Nikola Energy division for installing hydrogen fueling stations for heavy-duty trucks at two of its existing sites in California. This partnership should help the companies develop a network of hydrogen fueling stations across the nation and accelerate the pace of adoption of hydrogen fuel-cell-powered commercial electric trucks.
The two stations are expected to be commercially operational by the first quarter of 2023. TA’s foray into the future of heavy-duty trucks should position it to capitalize on the transportation industry's shift toward alternative fuel.
Favorable Analyst Estimates
The consensus EPS estimate of $0.33 for the current quarter, ending June 2021, indicates a 26.9% improvement year-over-year. Moreover, its EPS is expected to rise 129.3% in the current year, and 237% next year.
Analysts expect TA’s revenues to rise 41% year-over-year to $1.79 billion in the next quarter, ending September 2021. Also, the Street expects its revenues to come in at $6.98 billion in 2021, up 43.9% from the same period last year.
Impressive Growth and Profitability
TA’s store and retail services revenue increased 13.1% year-over-year to $171.77 million in the first quarter that ended March 31, 2021. Its total revenue grew 17.3% from the year-ago value to $1.53 billion, while adjusted EBITDA increased 106.9% year-over-year to $28.6 million. The company’s adjusted EBITDAR margin rose to 17.6% from 15.3% for the prior-year period. Also, TA’s total nonfuel revenues increased to 5.4% year-over-year to $447.91 million.
TA’s trailing-12-month asset turnover ratio of 1.5% is 56% higher than the industry average of 0.97%. Additionally, the company’s trailing-12-month cash from operations of $284.98 million compares favorably with the industry average of $215.92 million.
Consensus Rating and Price Target Reflect Potential Upside
Of the five Wall Street analysts that have rated TA, three rate it Strong Buy and two rate it Buy. The stock has an average broker rating of 1.2, indicating favorable analyst sentiment. Also, analysts expect the stock to hit $36.95 soon, indicating a potential upside of 22.5%.
POWR Ratings Reflect Promising Outlook
TA has an overall grade of B, which translates into Buy rating in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree.
Our proprietary ratings system also evaluates each stock based on eight different categories. TA has a grade of B for Sentiment and Growth, consistent with analysts’ expectation that its revenue and earnings will grow.
TA also has a Value Grade of B. The stock’s forward EV/Sales of 0.34x, which is 78% lower than the industry average of 1.55x, is in sync with this grade.
Click here to see the additional POWR Ratings grades for TA (Quality, Stability, and Momentum). The stock is ranked #8 out of 36 stocks in the B-rated Specialty Retailer industry.
If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.
Bottom Line
As summer arrives, the demand for interstate travel with families taking driving vacations should drive TA’s growth. The company’s strategic collaboration and nationwide network expansion plans should help the stock keep moving higher. So, I think TA could be a good bet now.
TA shares were trading at $28.92 per share on Thursday morning, down $1.24 (-4.11%). Year-to-date, TA has declined -11.29%, versus a 12.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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