Skip to content
businessgrants

businessgrants

Award Winning Business

Primary Menu businessgrants

businessgrants

  • Winning business
  • Advertise Here
  • Contact Us
  • Privacy Policy
  • Sitemap
  • general

Casey’s General Stores Stock: The Case To Wait (NASDAQ:CASY)

2 weeks ago Magenet Magenet

Table of Contents

  • An “Ok” Call
  • I Said It Once, I’ll Say It Again: A Wonderful Business
  • Taking a Few Steps Back Before Diving In
  • My Take On It


ablokhin/iStock Editorial via Getty Images

Related Posts:

  • Casey's General Stores stock price drops with high gas prices, predictions of slowing growth

An “Ok” Call

Time flies. The last time I wrote about Casey’s General Stores, Inc. (NASDAQ:CASY) was January 30, 2017. I’ve always liked CASY, noting its “wonderfully simple business model”. Many other investors seem to like the firm too when considering the company’s 5-year average GAAP P/E and P/B ratios.

Figure 1: CASY Valuation Grade and Underlying Metrics

Figure 1: CASY Valuation Grade and Underlying Metrics (Seeking Alpha)

I offered a “Buy” rating in my original article despite noting that CASY was not inexpensive. Generally, it turned out to be an “ok” call, with the stock trading in the low $100s when the article was written, rising to over $200/share as recently as this month, albeit with a couple major dips along the way.

Figure 2: CASY Stock Price Chart (Seeking Alpha)

Figure 2: CASY Stock Price Chart (Seeking Alpha)

The last year, however, has seen the stock stumble despite a strong Q4 FY ‘22 performance reported only a few days ago on June 8. As I write this, the stock is trading down at ~$186, another victim of today’s market carnage.

Figure 3: CASY and Selected Competitor Performance

Figure 3: CASY and Selected Competitor Performance (Yves Sukhu)

Notes:

  • Data as of market close June 10, 2022.

I ask again, as I did in my original article, is now a good time to buy CASY?

I Said It Once, I’ll Say It Again: A Wonderful Business

Let us quickly recap the key highlights from the June 8 earnings call.

  • Inside sales up 6.6% and 5.2% for FY ‘22 and Q4 FY ‘22, respectively. CASY recorded inside sales of $4.35B and $1.04B for the fiscal and quarterly period respectively, driven by prepared foods and beverage sales. Investors should acknowledge the strong Q4 performance given the seasonality of CASY’s business which typically results in slower beverage sales during colder weather.

  • Fuel sales up 4.4% and 1.5% for FY ‘22 and Q4 FY ‘22, respectively. Fuel sales for the full year stood at $2.6B, with $621M recognized during the quarter. Fuel margin was up sharply, at nearly ~10%, during Q4; and just over 3% for the year.

  • Diluted EPS of $9.10 and $1.60 for FY ‘22 and Q4 FY ‘22, respectively. FY ‘22 diluted EPS results reflect an all-time high, and Q4 diluted EPS was up 43% year-over-year.

  • Quarterly dividend increase of 9% to $0.38/share. Management noted the dividend raise marked the 23rd consecutive annual increase.

  • Store growth of 228 stores. CASY finished the year with 2,452 stores, with FY ‘22 “marking the largest unit growth year in the [company’s] history.”

  • Variable rate debt prepayment of $168M. Outstanding debt at the end of FY ‘22 was shy of $1.7B.

These results reinforce the enduring strength of CASY’s unique operating model, focusing their 2,000+ stores on rural, Midwest markets while offering consumers a value-added experience via a hybrid convenience-store / general-store format.

Figure 4: CASY Overview

Figure 4: CASY Overview (CASY Investor Deck March 2022)

Notably, when I wrote about CASY all the way back in 2017, the firm was finding its rhythm within the prepared foods markets and today finds itself as the 5th largest pizza chain in the United States – which incidentally is why I opted to include DPZ in Figure 3. On that last point, it is challenging to select a group of peers that closely mirror CASY as their go-to-market strategy is, arguably, rather unique. However, I think this fact speaks to the bull case for the firm.

Figure 5: CASY Differentiators

Figure 5: CASY Differentiators (CASY Investor Deck March 2022)

As they should, CASY is continuing to evolve its prepared foods segment with additional product offerings (e.g., breakfast) as it follows the general trend in convenience store dynamics. Moreover, as the highest gross margin business among CASY’s 3 main segments (i.e., ~60% prepared foods gross margin versus ~32% grocery and general merchandise in FY ‘21), prepared foods drives a significant and growing portion of gross profit, while offering an opportunity to create a certain “stickiness” among CASY’s customer base.

Figure 6: CASY Operating Segment Revenue and Gross Profit

Figure 6: CASY Operating Segment Revenue and Gross Profit (CASY Investor Deck March 2022)

The combination of the company’s strong customer value proposition, rigid focus on the rural Midwest, and vertically integrated strategy (e.g., self-owned fuel-tanker fleet, distribution network, in-house real estate, and construction teams) makes for a compelling long investment. But, before we dive in head-first, let us consider a couple points on the other side as well.

Taking a Few Steps Back Before Diving In

The following points of concern are by no means exhaustive, but at least some considerations that are worth keeping “front-of-mind”.

1. Recent fuel price volatility has clouded management’s visibility into FY ‘23. CASY’s management team offered the following FY ‘23 forecast as part of their Investor Day presentation in March of this year.

Figure 7: CASY Investor Day FY ‘23 Forecast

Figure 7: CASY Investor Day FY ‘23 Forecast (CASY Investor Deck March 2022)

Management reiterated most of these points in their Q4 FY ‘22 press release:

Casey’s expects the following performance during fiscal 2023. The Company expects same-store inside sales to increase 4% to 6% and maintain an inside margin of approximately 40%. The Company expects same-store fuel gallons to be flat to 2% higher. Total operating expenses are expected to increase approximately 9% to 10%. The Company expects to add approximately 80 stores in fiscal 2023, and expects to exceed our stated three year commitment of 345 units. Interest expense is expected to be approximately $55 million. Depreciation and amortization is expected to be approximately $320 million and the purchase of property plant and equipment is expected to be approximately $450 to $500 million, including approximately $135 million in one-time store remodel costs for recently acquired stores. The tax rate is expected to be approximately 24% to 26% for the year.

EBITDA growth is noticeably absent from the discussion above. In fact, we need to turn to the Q4 FY ‘22 Earnings Call Transcript where management tells us “[given] the unprecedented fuel cost volatility that we’ve seen in the past few months, we’re not guiding to a [cents-per-gallon (“CPG”)] figure at this point. For model calibration purposes only, however…annual fuel profitability in the mid-30s CPG would lead to EBITDA growth for the year of at least 5% to 6%.” It stands to reason that CASY could actually see little to no EBITDA growth in FY ‘23 due to fuel price fluctuations.

2. Despite arguably serving as CASY’s key growth area, prepared food same-store sales have actually been trending down.

Figure 8: CASY Prepared Food & Dispensed Beverage Same-Store Sales

Figure 8: CASY Prepared Food & Dispensed Beverage Same-Store Sales (CASY Investor Deck March 2022)

We see that prepared food gross margin has been trending downward as well. I don’t know that investors should read too much into these trends at this point. Obviously, should it continue, we might begin to surmise something is fundamentally wrong with that aspect of the business. Still, the trend does not bode well for FY ‘23 EBITDA modeling given that prepared food and dispensed beverages offer the highest margins of CASY’s 3 main businesses.

3. CASY is just an expensive stock. From Figure 1, we can see that investors have traditionally “baked-in” high expectations into CASY’s stock price. The firm appears well-managed, and as I argued earlier, has a unique go-to-market strategy. So, it is understandable, on those points, that investors have high expectations. Of course, however, that does not imply that those expectations are reasonable, and hence that the stock price is reasonable.

My Take On It

As I’ve said before, I think CASY is a wonderful company. But, I am personally not keen to jump into the stock even with today’s pullback, which saw the price dip below $186 at the close.

What price is reasonable? I’m not sure I have a perfect answer to that question. I was reading an article earlier today quoting the legendary Jeremy Siegel who recommends buying into the current dip in markets. The same article notes the (probably familiar) 10-year P/E average for the S&P 500 of 16.9. If we just round that up to 17 and apply it to CASY’s FY ‘22 diluted EPS, we get a price of $154.70. Is the stock going to fall another ~17% from today’s close? In this market, it’s possible…

I think investors who are already long the stock would be best served to hold with the understanding that FY ‘23 could prove turbulent due to fuel cost uncertainties and inconsistent performance from prepared foods. For investors looking to jump in, I would suggest waiting for another pullback with perhaps a price of ~$150 being reasonable, but not necessarily a bargain.



Source link

Tags: "Taking Care Of Business, Amazon Business Credit Card, American Airlines Business Class, Att Business Login, Austin Business Journal, Best Bank For Small Business, Best Business Bank Accounts, Best Business Schools In Us, Best Business To Start, British Airways Business Class, Business Attire Men, Business Card Ideas, Business Casual Shoes For Women, Business Continuity Planning, Business Entity Search, Business Letter Template, Business Management Degree, Business Manager Facebook, Business Plan Outline, Business School Rankings, Colorado Business Search, Delaware Business Entity Search, Drop Shipping Business, Family Business Bet, Fox Business Live, Georgia Sos Business Search, Google Business Account, Harvest Small Business Finance, How To Build Business Credit, Is Saturday A Business Day, Is Sears Still In Business, Microsoft 365 Business, My Business Google, Name Generator Business, None Of Your Business, Ny Sos Business Search, Open A Business Bank Account, Pa Business Search", Plus Size Business Casual, Pnc Business Banking, Sos Business Search Ca, Sunbiz Business Search, The Business Of Being Born, Turbotax Home And Business 2020, Tx Sos Business Search, Venmo For Business, Verizon Business Plans, Virtual Address For Business, What Are Business Days, Women Business Casual

Continue Reading

Previous How to Grow Your Small Business in 2022 » Small Business Bonfire
Next How to Drive More Traffic and Conversions from Social Media

More Stories

  • general

Insider, Forbes and Reuters are top biz news sites in UK

13 hours ago Magenet Magenet
  • general

GM Is Training First Responders on Electric Car Crashes

14 hours ago Magenet Magenet
Florida Cop Charged with EIDL Loan Fraud - See How He Allegedly Used the Money
  • general

Florida Cop Charged with EIDL Loan Fraud – See How He Allegedly Used the Money

2 days ago Magenet Magenet

Recent Posts

  • Cision and Meltwater Face Competition From Smaller PR Tech Firms
  • Insider, Forbes and Reuters are top biz news sites in UK
  • GM Is Training First Responders on Electric Car Crashes
  • Business Insurance: Top Tips To Ensure It’s Correct For You
  • Finance’s Roe v. Wade conundrum

Archives

  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • October 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • December 2020
  • November 2020
  • November 2018
  • October 2018
  • January 2017

Categories

  • business
  • business
  • business & finance
  • finance
  • general
  • Winning business

visit now

business development
Intellifluence Trusted Blogger

backlinks

textlinks

Related Article

  • Winning business

Cision and Meltwater Face Competition From Smaller PR Tech Firms

13 hours ago Magenet Magenet
  • general

Insider, Forbes and Reuters are top biz news sites in UK

13 hours ago Magenet Magenet
  • general

GM Is Training First Responders on Electric Car Crashes

14 hours ago Magenet Magenet
Money
  • finance

Business Insurance: Top Tips To Ensure It’s Correct For You

15 hours ago Magenet Magenet
  • finance

Finance’s Roe v. Wade conundrum

15 hours ago Magenet Magenet
businessgrants.xyz | CoverNews by AF themes.
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT