By Michael Hooper
Stock in Casey’s General Stores (CASY) has returned 114% over the past five years, plus paid $7.09 in dividends during that time period.
Casey’s is poised for additional growth in 2024 with the acquisition of 22 Lone Star Stores in Texas that will be rebranded as Casey's stores
Casey’s is the No. 5 seller of pizza in America. Casey's breakfast pizza has grown in popularity.
At 22 times earnings, CASY stock is fully valued, but it almost always trades at this high multiple, with the stock trending up as EPS has grown over the years. The company deserves this 22 p/e ratio because of its growth rate. I see so much upside with the company's strategy that includes acquisitions and new builds. As a result I predict this stock may hit $310 per share. CASY closed Friday, Jan. 19, 2024, at $285.58.
As a boy, growing up in Iowa and Nebraska. I was familiar with Casey’s. The firm is based in Ankeny, Iowa.
Over the years. I have been impressed with how Casey’s has increased the quality and variety of its freshly baked foods. I saw the stock go up continuously over the years and thought I missed it. During the Covid crash of spring of 2020, all stocks corrected and I found myself with an opportunity to buy some of my favorite companies at a discount. I bought multiple stocks, including Casey’s at $130.25 per share on March 27, 2020. I have continued to add to my position since then, and recently added more CASY shares based on everything I see happening with this company, including strong margins for gasoline, high inside sales margins, vigilant cost containment and growth of its prepared foods business.
John Lawrence, analyst with Benchmark Company, issued a buy rating on the stock and gave it a price target of $312 per share.
Lawrence and other analysts met with Casey’s management recently at the ICR conference in Orlando. Management noted that fuel margins and profitability in the fuel business remain robust, as the last 10 quarters have yielded margins of over $0.35 cents per gallon and five of the last six quarters have been over $.40 per gallon. It appears this higher level of gas margin is sustainable overtime, Lawrence wrote.
In the third quarter, management said margins for prepared foods and dispense beverages was 59%, which is incredibly good. Total inside sales margin was 41.1%. Inside sales were about $1 billion in the third quarter, representing about 30% of total sales.
Lawrence said that over the last few years management has increased its new unit growth rate by making several acquisitions. He said the playbook calls for acquiring operators at a 6 to 9 times earnings range. CASY is then able to use its scale and food expertise to grow the high margin food component, which makes the acquisition profitable, he said.
The merchandise side of the operation continues to demonstrate solid growth in both the grocery and food service segments, he wrote.
Operating expenses continue to show improvement as same-store labor hours were cut by 2% last quarter, Lawrence wrote. Customers now have the loyalty club and the broader private label assortment to offer its customer base. The unique model that resides at Casey’s continues to yield higher levels of profitability. Management is using its scale to acquire operations, and then being disciplined on taking costs out of the business, Lawrence wrote.
"We continue to recommend purchase of CASY shares as management continues to execute the playbook," he wrote.
Lawrence said his $312 price target is based on 20 times fiscal year 2025 EPS estimate of $13.57 per share as the higher unit growth rate and consistent fuel margins in the mid 40s should enhance the multiple.
I live in Kansas, but travel to Nebraska often and stop at a Casey’s in Auburn, Neb. I usually buy fuel, go inside for a bathroom break and buy a doughnut or a water or a coffee or perhaps a juice drink. Maybe some popcorn. When my son was growing up, he always ordered the pizza. It’s not surprising. This pizza is a hit. The company recently added thin crust pizza.
Customers buy a lot of pizza and beer, the two go together, like Ebony and Ivory.
The company recently announced plans to hire a chief pizza and beer officer.
Casey’s has a history of serving smaller towns in the Midwest, they can make a business go with a population as little as 300. They have some stores where it's the general store for the whole town; for basic groceries like milk and juice, eggs, bread, and coffee. And if you’re a member of Casey’s rewards program you get a discount.
Casey's has entered several mid-tier markets and is doing quite well. The company's new store in North Topeka is going gangbusters. Casey's is building a new store near Highland Park High School in Topeka. I imagine those high school students will buy its pizza.
A relative of mine has noticed many kids buying the breakfast pizza at the Casey's in Geneva, Neb., before they go to the high school there.
Casey's market cap is around $10.5 billion. Company has $409.89 million in cash and $1.65 billion debt.
The company said it operates over 2,600 convenient stores. Founded more than 50 years ago, the company has grown to become the third-largest convenience store retailer and the fifth-largest pizza chain in the United States. The company says Casey’s provides freshly prepared foods, fuel and friendly service at its locations. Guests can enjoy pizza, donuts, other assorted bakery items, and a wide selection of beverages and snacks.
The company said approximately 50% of Casey's stores are still found in areas with populations of 5,000 or less. In contrast, roughly 25% of Casey's are now located in areas with populations of 20,000 or more. Casey's has a strong balance sheet and owns nearly all of its assets, which allows the company to consistently take advantage of growth opportunities.
Conclusion
CASY stock is a keeper. I recommend buying this stock and holding it for the next three to five years as Casey's continues to implement its playbook.
