Travelcenters of America: Free Cash Flow Will Fuel Growth

Travelcenters of America (TA) released 2006 results and held a conference call yesterday.

Most of the data was pro forma, but we estimate that the company has the ability to generate about $25 million in free cash flow at this point ($2.84/share). Management is primarily focused on growth.

As TA has a lot of operating leverage, they feel that expending growth capex on new centers and expanding old centers is the best way to bring the company to profitability. Rent increases are going to be moderate over the next 5 years (less than 2% per year), so any growth in EBITDA over 2% annually will be accretive to earnings and free cash flow.

They are not considering share buybacks at this time, although 75% of their $200 million cash horde is "free", amounting to $17/share in free cash.

At the current price, the company still looks underpriced.

Disclosure: We still hold shares of TA.

TA 3 month chart:

Comments

[stephen jasper:]

brian,

i received ta spinout stock and bought more based on my calculations and your opinion of value stated in feb article.

i am having difficulty using financials that are now available to calculate how ta current cash and cash flow could be translated into growth and profits over the next 5 years.
just read about upcoming stock offering which adds another factor to the calculations.
i tried to get my hands on reports from the stock brokers who recently announced coverage to get their estimates but they are small fry that are not widely distributed.
would be interested in another article from you that develops projected acquisition path and its impact on profit and stock value.

also cant find any message boards on ta to trade info with others following ta. do you know of any?

steve jasper
retired invester
california

2007 Jun 18 02:21 PM

[stephen jasper:]

brian,

i received ta spinout stock and bought more based on my calculations and your opinion of value stated in feb article.

i am having difficulty using financials that are now available to calculate how ta current cash and cash flow could be translated into growth and profits over the next 5 years.
just read about upcoming stock offering which adds another factor to the calculations.
i tried to get my hands on reports from the stock brokers who recently announced coverage to get their estimates but they are small fry that are not widely distributed.
would be interested in another article from you that develops projected acquisition path and its impact on profit and stock value.

also cant find any message boards on ta to trade info with others following ta.
do you know of any?

steve jasper
retired invester
California
[e-mail]

2007 Jun 18 02:27 PM