Is This The Bottom For Casey’s General Stores
Price action in Casey’s General Stores (NASDAQ: CASY) has been trending lower over the past few quarters but it looks like the market is trying to put in a bottom. The Q3 results were a bit mixed but come with one notable takeaway, the company has been able to widen its margins and maintain earnings outperformance despite difficult macro conditions and we see this trend continuing. Not only is Casey’s widening margin, but it is also building and acquiring new stores so we don’t see the company’s growth slowing any time soon and the analysts agree, at least in principle.
There are 10 analysts covering Casey’s General Stores and they rate the stock a buy. There hasn’t been a lot of activity since the Q3 results were released but it is consistent with the Pricetargets.com consensus of analysts. The two updates come from RBC and Deutsche Bank which both rate the stock at a buy or equivalent and both include a $2 price target revision. RBC revised its target lower while Deutsche Bank revised its target higher and to the highest level of them all. RBC’s target of $235 is in-line with the consensus and implies about 35% of upside for share prices while the high target of $259 adds another 10% to the median figure.
Casey’s General Stores Accelerates Growth
Casey’s General Stores has been working hard on growth the last few years and those efforts are showing up in the results. The company added more than 200 stores over the past year bringing the count up to over 2400 and this is accompanied by a widening margin. The $3.0 billion in revenue is up 50% from last year but missed the consensus by a slim 160 basis points. That is a tad concerning but less important than the earnings power which is growing. In regards to revenue, revenue growth is due to organic strength in both inside and gasoline sales compounded by the rising cost of gas. Inside sales posted a 7.6% comp aided by a 17% improvement in the breakfast daypart while fuel gallons sold increased by 5.7%.
Moving down to the earnings, the company posted a small 20 basis point decline in inside sales margin due to rising wages and other input costs but that was offset by fuel margin strength and leverage at the operating level. Fuel margins improved by $0.054 or 16.5% which is quite a feat given the conditions. Turning to the guidance, the company reiterated its guidance for mid-single-digit comp store increases to include both fuel and inside sales.
Casey’s General Stores Buys Back Shares
Casey’s General Stores has an attractive capital return program that includes both dividends and share repurchases. The board just increased the buyback allotment to a total of $400 million or up $100 million from the previously disclosed amount. This is worth bout 6.2% of the market cap with shares at $176 and will likely be added to in future quarters. The dividend isn’t huge at 0.80% but it is relatively safe and comes with a positive expectation for an increase. The company is only paying out 16% of its consensus for earnings, has a healthy balance sheet, and has a 22-year history of distribution increases.
The Technical Outlook: CASY Hit A New Low
Price action in Casey’s General Stores slipped in the wake of the Q3 release and hit a new low for the movement. The low was met by buyers who sparked a bounce in price action and now the market is retesting for support at a slightly higher level. Assuming the market follows through on this move and establishes support at this level, we see price action moving sideways before it moves higher. If, however, shares of CASY fall below $172 they could retreat down to the $160 level or lower.
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