Fuel Your Portfolio With This Undervalued Stock
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Thanks to the efforts of frackers all over North America, the LNG revolution is upon us, and it would appear that TravelCenters Of America (NYSE: TA) and Royal Dutch Shell (NYSE: RDS-A) have joined forces, a little like the travel center and integrated oil version of Voltron, to attack the market one trucking lane at a time. So, are you still wondering why TravelCenters Of America was up so much on Thursday on over 1 million shares traded, when the three month daily trading average is roughly 255,000? It might have something to do with a press release of theirs, in which the company announced that it is partnering with Royal Dutch Shell, and that they together have signed a Memorandum of Understanding to construct 200 natural gas fueling lanes on at least 100 TravelCenters locations. I’d expect this is just the beginning of the relationship, so it’s an exciting growth market for TravelCenters of America to address.
It also probably doesn’t hurt that TravelCenters also presented at the Stephens Spring Investment Conference on June 6. Since the opening on June 6th, TravelCenters is up almost $1, or roughly 19%. That TravelCenters was heavily bought two days after its management team spoke to institutional investors is likely a good sign that the professionals liked what they heard.
At $5.41, TravelCenters currently trades at 5.80x EV to ’12 estimated EBITDA, including its leases as debt. This compares to 6.05x for Pantry Inc. (NASDAQ: PTRY), 6.91x for Susser Holdings Corporation (NYSE: SUSS), and 8.48x for Casey’s General Stores (NASDAQ: CASY). But where it really gets interesting? The PE ratio compared to those same peers. For while TravelCenters' EV/EBITDA ratios for ’12 and ’13 are merely slightly lower than that of its peers, its PE ratio is in the single digits. TravelCenters is trading at just $5.41 per share, and in 2012 it is expected to earn $1.06 per share, and in 2013 that goes to $1.38, meaning its PE is just 5.10x and 3.92x ’12 and ’13 estimates. This is low by any standard, especially for a company that is not in any financially distressed position. What’s more, on average, its comparables Pantry, Susser, and Casey's trade at 20.71x and 14.86x ’12 and ’13 EPS estimates. So, if you argued that it should trade more like the average PE multiple of its peers, the stock should potentially quadruple.
Why is it so cheap, you ask? Well, it’s hard to say. Perhaps it’s because its market cap is half that of its smallest competitor, Pantry, and less than a tenth that of its largest comp in this group, Casey's. Perhaps it’s because it trades on the Amex. Perhaps it’s because investors don’t trust the massive amount of capex spent in the last year or so to upgrade TravelCenter locations. A bull might argue, however, that those are sunk costs now, that a stock can eventually be listed elsewhere, and given that the stock’s price has risen so precipitously in the last two days, it may be that TravelCenters does not stay under the institutional radar for much longer.
ArtofReason has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend The Pantry. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.