Casey's General (NASDAQ:CASY) Stores, Inc. (NASDAQ:CASY), a prominent convenience store chain operating across the Midwestern and Southern United States, has been making strategic moves to strengthen its market position and drive growth. With a market capitalization of $14.57 billion and annual revenue of nearly $15 billion, the company, known for its prepared food offerings and fuel services, has recently caught the attention of investors and analysts due to its acquisition strategy and financial performance. According to InvestingPro, Casey's maintains a GOOD financial health score of 2.94, reflecting its solid operational foundation.
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Acquisition of CEFCO Stores
In a significant development, Casey's announced the acquisition of Fikes Wholesale, Inc., including 198 CEFCO convenience stores located in Texas, Alabama, Mississippi, and Florida. This $1.145 billion transaction, expected to close later in 2024, marks a strategic expansion of Casey's footprint into Texas and further into Florida. The acquisition aligns with the company's growth strategy and is anticipated to increase Casey's store network by approximately 7% in targeted geographies.
Analysts view this move as a solid transaction that accelerates Casey's timeline to add 350 stores by one year. While there may be modest earnings per share (EPS) dilution in the first year following the acquisition, management expects a more significant financial contribution in the second half of fiscal year 2026 and fiscal year 2027 as newly opened stores mature and synergies are realized.
Financial Performance
Casey's recent financial results have been encouraging. In the first quarter of fiscal year 2025, the company reported earnings per share of $4.83, representing a 7% year-over-year increase and surpassing the consensus estimate of $4.52 by approximately 7%. With a trailing twelve-month diluted EPS of $14.34 and a P/E ratio of 27.19, Casey's trades at a premium valuation relative to its near-term earnings growth. This outperformance was largely driven by fuel sales, with stronger than expected gallons sold and cents per gallon.
The company's inside store gross profit, excluding "other" categories, met forecasts, while selling, general, and administrative (SG&A) expenses were well controlled, showing only a 0.7% increase. This demonstrates Casey's ability to manage costs effectively while driving growth.
Market Position and Strategy
Casey's has established itself as a differentiated player in the convenience store industry. The company benefits from an attractive inside-store mix, consistent unit growth, and strong operational expense control. Its focus on prepared foods and a robust loyalty program has contributed to its premium valuation compared to peers. Notably, Casey's has maintained dividend payments for 36 consecutive years and has raised its dividend for 25 consecutive years, demonstrating its commitment to shareholder returns while maintaining a moderate level of debt.
The recent CEFCO acquisition is expected to strengthen Casey's market presence in attractive regions and contribute to revenue diversification. This move is part of the company's broader strategy to expand its footprint and capitalize on industry consolidation trends that benefit larger operators.
Operational Efficiency
Under the leadership of CEO Darren Revelez, Casey's has demonstrated strong execution and progress in operational efficiency initiatives. The company's ability to control costs while driving same-store sales growth has been a key factor in its success.
Casey's long-term EBITDA growth target of 8.0%-10.0% CAGR through FY26 is seen as achievable by some analysts, reflecting confidence in the company's operational capabilities and strategic direction.
Future Outlook
While Casey's has shown strong performance and strategic growth, the company faces both opportunities and challenges in the near future. The convenience store industry's resilience compared to traditional retailers provides a solid foundation, but external risks such as oil market dynamics and commodity price volatility remain factors to consider. Based on InvestingPro's Fair Value analysis, Casey's currently appears to be trading above its Fair Value, suggesting investors should carefully consider entry points.
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Analysts have noted that structural tailwinds, particularly in gasoline, may have peaked, which could impact future performance. Additionally, the company's elevated valuation compared to peers (12.7x EV/EBITDA vs. peer average of 10.3x) suggests that much of the positive outlook may already be priced into the stock.
Bear Case
How might declining fuel margins impact Casey's profitability?
Casey's General Stores has experienced declining fuel margins year-over-year in four of the past six quarters, indicating a normalization pattern following the surge seen in fiscal years 2021-2023. This trend could pose a significant challenge to the company's profitability, as fuel sales contribute substantially to overall earnings.
The convenience store industry is known for its sensitivity to fuel margin fluctuations, and a continued decline could pressure Casey's bottom line. If margins continue to normalize or face further compression due to market conditions or increased competition, it may offset gains from other segments of the business, such as prepared foods and inside store sales.
Could the current valuation premium limit future stock price appreciation?
Casey's stock has seen a significant increase, with a 44% year-to-date gain reported in late 2024. This performance has led to a valuation premium compared to its peers, with an EV/EBITDA multiple of 12.7x versus the peer average of 10.3x. Such elevated valuation levels suggest that much of the company's positive outlook and strong execution may already be reflected in the stock price.
The premium valuation could limit potential upside for investors, as it may be challenging for Casey's to consistently outperform already high expectations. Any operational missteps, slower-than-anticipated integration of acquisitions, or macroeconomic headwinds could lead to a correction in the stock price, given the limited room for further multiple expansion.
Bull Case
How will the CEFCO acquisition contribute to Casey's growth strategy?
The acquisition of 198 CEFCO stores represents a significant opportunity for Casey's to accelerate its growth strategy and expand its geographic footprint. This move aligns with the company's goal of adding 350 stores and has expedited this timeline by approximately one year.
The CEFCO acquisition provides Casey's with immediate entry into the Texas market and strengthens its presence in Florida, Alabama, and Mississippi. This expansion into new territories is expected to contribute to revenue diversification and potentially unlock new growth opportunities. As these stores are integrated and optimized to match Casey's operational standards, particularly in the high-margin prepared food segment, they could drive meaningful earnings growth in the coming years.
Additionally, the acquisition includes a wholesale distribution network, which may offer synergies and operational efficiencies across Casey's expanded store base. The company's track record of successful integrations and operational improvements suggests that it could extract significant value from this acquisition over time.
Can Casey's maintain its strong same-store sales performance?
Casey's has consistently outperformed its peers in same-store sales growth, particularly in its prepared food segment. This strong performance has been a key driver of the company's success and premium valuation. The question is whether Casey's can continue this trend in the face of increasing competition and potential economic headwinds.
Several factors support the bull case for continued strong same-store sales performance:
1. Innovative product offerings: Casey's has demonstrated a commitment to new item innovation, particularly in its prepared food segment. This focus on menu development and quality could help maintain customer interest and drive repeat visits.
2. Loyalty program: The company's robust loyalty program has been effective in driving customer engagement and increasing basket sizes. Continued refinement and expansion of this program could further support same-store sales growth.
3. Operational efficiencies: Casey's has shown strong execution in controlling costs and improving store-level operations. These efficiencies can allow the company to invest in pricing and promotions to drive traffic and sales without sacrificing margins.
4. Strategic sourcing: Initiatives in procurement and supply chain management could lead to cost savings, allowing Casey's to offer competitive pricing while maintaining profitability.
If Casey's can leverage these strengths and continue to adapt to changing consumer preferences, it may be well-positioned to maintain its track record of strong same-store sales performance, supporting the bull case for the stock.
SWOT Analysis
Strengths:
- Strong prepared food segment with continuous innovation
- Consistent same-store sales outperformance compared to peers
- Effective operational expense control
- Strategic acquisition strategy driving growth
- Robust loyalty program enhancing customer engagement
Weaknesses:
- Exposure to volatile fuel margins
- Geographic concentration, primarily in Midwest and Southern regions
- Premium valuation compared to peers, potentially limiting upside
Opportunities:
- Expansion into new markets through acquisitions (e.g., Texas)
- Potential for synergies and efficiencies from recent acquisitions
- Further development of private label and prepared food offerings
- Leveraging data analytics for personalized marketing and inventory management
Threats:
- Normalization of fuel margins after recent highs
- Increasing competition in the convenience store sector
- Potential economic downturn affecting consumer spending
- Commodity price volatility impacting input costs
- Regulatory changes affecting fuel sales or prepared food operations
Analysts Targets
- BMO Capital Markets: $450 (January 16th, 2025)
- RBC Capital Markets: $428 (December 10th, 2024)
- Gordon Haskett: $400 (November 4th, 2024)
- RBC Capital Markets: $403 (September 5th, 2024)
- Benchmark: $410 (July 29th, 2024)
This analysis is based on information available up to January 16, 2025.
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