Are Investors Bailing on Travel America as Diesel Shortages Loom?

Are Investors Bailing on Travel America as Diesel Shortages Loom?

TravelCenters of America (NASDAQ: TA) stood out the day after the company reported earnings. Investors would not like it. TA stock fell over 20% after the company delivered a mixed earnings report. The company beat its revenue estimates, but was light on earnings.



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We’ve seen companies fall short on earnings projections. And with TA stock up about 15% in the 30 days prior to earnings, it’s possible this sell-off is investors acknowledging that they were pricing in a beat and got the opposite. That’s one explanation. It may be true. Since August’s second-quarter earnings call, the stock has been rising in price. But it’s also possible that this result is about investors hedging on the news of likely diesel fuel shortages.

However, based on technical indicators, TA stock is starting to look oversold. We’ll be asking investors if they should consider buying Travel America during this dip.

The Good News About Rising Diesel Fuel Prices

TravelCenters of America has increased its market share and is now using artificial intelligence to help them buy fuel. This is resulting in increased margins for the company, which has been growing. In the earnings report, chief executive officer Jonathan Pertchick said, “Our fuel team continued to navigate ongoing uncertain macroeconomic conditions, delivering not only an ample supply of fuel to the field but also a 24.9% increase in fuel gross margin versus the prior year.”

The company’s internal estimates also show an increase in the U.S. diesel market share in the past three years. According to the company, it has moved from being underperforming to being overperforming.

The Bad News About Rising Diesel Fuel Prices

On the conference call after the company’s earnings report, Perthick was asked about the company’s level of concern about diesel fuel shortages. He said that if there were to be a shortage of fuel in certain areas, it would “be rare and short-lived and… focus surgically (on certain key areas or specific areas)” That may be true. The simple truth is that demand is a different thing than supply. As early as February 2022, some small fleet operators were buckling under the weight of higher diesel prices. It is not unreasonable to expect that diesel prices will rise due to a decrease in supply.

Demand could also be affected by fleet operators passing on their higher fuel prices. So far, the consumer seems to be doing well. They may be able to get through the holiday season. It’s hard to say after that.

Can the Convenience Store Business Help TA Stock?

Of course, like Casey’s General Store (NASDAQ:CASY) and Murphy USA (NYSE:MUSA), TravelCenters of America does more than sell gas. It’s a convenience store. This makes it a popular choice for travelers. There is no consensus on what consumers will do at the time of writing.

However, since travel and entertainment stocks continue to do well, it’s fair to speculate that there is still pent-up demand for travel. This could be a benefit for Travel America. However, the margins for the goods sold in convenience stores are much lower than those of Travel America.

Is TA Stock a Buy?

The post-earnings sell-off has pushed the stock below its 50-day simple moving average (SMA). However, the stock price is still comfortably above the 200-day SMA and it is looking technically oversold. The price-to-earnings ratio, which is currently at 6.3x, adds to the bullishness.

Does this mean that you should buy TA stock, or not? The consensus of analysts surveyed by MarketBeat give the stock a moderate buy rating with a 62. 80 price target. That’s a 27% upside from its current price. The stock is now negative for the year due to the recent sell-off. And with the Federal Reserve just raising interest rates by another 75 basis points, there may be a further drop to come. Until there is more clarity about the broader economy, TA stock is a hold.

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