TravelCenters of America (NYSE:TA), a nationwide operator of travelers' services, reported 2009 results that continue to pose difficult challenges for the company. For the fourth quarter, TA lost $2.65 a share despite a slight uptick in revenues. For the year, the bleeding was worse as the company lost $5.38 a share, this time on a nearly 40% plunge in sales.

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It's the Economy
While the state of the U.S. economy can be blamed for many of the difficulties that companies faced, TravelCenters' fortunes are squarely tied to a healthy economic recovery. That's because the company's principal business is the sale of fuel to big rig trucks that haul our goods across the state. TravelCenters is an operator of major interstate highway travel centers. These centers typically include numerous fuel pumps, truck repair stops, national brand quick service restaurants like Subway, Dairy Queen, Wendy's (NYSE:WEN), Burger King(NYSE:BKC), and in some cases motels.

Yet despite the wonderful brands associated with its travel centers, the bulk of the company's sales come from fuel sales, which have ultra-thin margins. As a result, volume is the name of the game for TA. Fuel volume has plunged over the past couple of years as fewer trucks were on the road delivering goods. According to the company, same-site fuel sales volume in 2009 was off 26% from 2007 and 16% from 2008. And because all of TA's major competitors are private, it's hard to compare relative performance.

An Option on a Firm Recovery
Of the $4.7 billion in revenues earned in 2009, $3.6 billion was from fuel sales, which had a cost of $3.4 billion. While the company has reduced operating expenses, it still wasn't enough to prevent a loss in 2009. The company's numbers also benefited from a rent deferral agreement that TA has with Hospitality Properties Trust (NYSE:HPT). HPT spun off TA a couple of years ago and remains the landlord for most of TA's travel centers. And because HPT has the biggest financial stake in TA, it agreed to allow TA to defer a portion of its rent for a few years. TA is essentially being saved by having its landlord as a shareholder - HPT wants to preserve its financial investment, so it will likely do whatever it can to keep the company going during these tough times.

However, these deferrals will one day need to be paid. All of TA's issues are solved with a lift in fuel demand, although fuel margins tend to be better in periods of falling fuel prices. The shares, around $4, put the company's value at about $70 million, against $150 million in cash and book value of $315 million. This current margin of safety gives investors a wonderful option on the economic recovery. However, investors should be aware that shareholders' equity was down from $400 million in 2008, mainly due to a $60 million liability increase as a result of the deferred rent.

A Long Road to Travel
Things won't get easy for TA any time soon, but at the current price, the balance sheet creates a very intriguing value play. (For more, check out The Value Investor's Handbook.)

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Tickers in this Article: TA, HPT, BKC, WEN

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