16 BARRON’S February 8, 2021
people are still going to pop down to
the C store.”
Casey’s General Stores, with a mar-
ket value of nearly $7 billion, might
not be a household name outside the
Midwest, but perhaps it should be. It’s
the fourth-largest convenience-store
chain in the U.S., behind privately held
7-Eleven, Circle K ownerAlimenta-
tion Couche-Tard(ATD.B.Canada),
and Speedway, soon to be absorbed by
7-Eleven ownerSeven&iHoldings
(3382.Japan).
In many small towns, Casey’s is
the only resource for groceries or hot
meals, and that has proved particu-
larly profitable: Margins on inside-
store sales, which exclude fuel, were
41% in Casey’s most recent quarter,
up from 39.6% in the prior period.
A well-oiled self-distribution net-
work for both fuel and merchandise
means that even though Casey’s has
lower traffic levels than rivals in more-
urban markets, it delivers similar
gross profits and return on capital.
Casey’s network also means that com-
petitors can’t muscle in on its turf
without facing significantly higher
supply-chain costs.
The coronavirus hasn’t been kind
to Casey’s, however. In its fiscal fourth
quarter of 2020, which ended in April,
Casey’s revenue fell nearly 17%, to
$1.81 billion, as the first wave of
Covid-19 pummeled the U.S. Sales rose
to more than $2 billion in the subse-
quent two quarters, but still fell by
double digits from the year-ago period.
C
asey’s already has started to re-
cover. Despite the hit to sales,
the company is expected to
grow earnings per share by
12.6% from a year ago to $7.99 this
fiscal year, and sales are projected to
return to year-over-year growth, with
an 18.4% rise to $2.15 billion in the
fiscal fourth quarter of 2021, which
ends in April.
Casey’s should benefit from a gen-
eral economic reopening, as more peo-
ple get back on the road, eat out, and
buy meals on the go. About a third of
the company’s food sales stem from
commuters dropping in for lunch, a
pattern that should slowly improve
toward prepandemic levels after the
U.S. achieves mass vaccination.
Even during the crisis, the company
has been rapidly expanding its loyalty
program, adding about half a million
new members in its most recent quar-
ter alone—a good sign for growth, and
another reason that analysts expect
sales to climb above prepandemic lev-
els of just shy of $10 billion by the full
fiscal-year 2022, which ends in April
of next year.
“There are opportunities, as people
drive more and have discovered the
[company’s] prepared food, for Casey’s
to continue to grow that,” says Julie
Biel, portfolio manager at Kayne
Anderson Rudnick. “For an investor
[focused on] near-term earnings
growth, it could be interesting.”
Covid-19 hasn’t stopped Casey’s
from expanding. The C-store industry
is fragmented, with leading players
commanding only mid-single digit per-
centages of the total market. Casey’s
has been purchasing smaller competi-
tors—the company previously indi-
cated that it thinks it can double its
store count—as it builds economies of
scale for long-term growth. InNovem-
ber, Casey’s announced that it would
acquire Bucky’s Convenience Stores as
part of a $580 million deal, the biggest
in its history and one that analysts
applauded from a strategic and finan-
cial perspective.
That growth profile makes the
stock’s valuation all the more attrac-
tive. Although it changes hands at 24
times forward earnings, slightly above
its five-year average of 23 times, it’s
worth noting that the Bucky’s transac-
tion, which is pending, hasn’t been
incorporated into many analyst models
yet. That will expand the earnings
portion of the price/earnings ratio.
“Casey’s wants to be in the top quin-
tile of all consumer-growth stories,”
says Stephens analyst Ben Bienvenu.
“If they can deliver on that, there’s a
lot of room for valuation expansion.”
Bienvenu has a $210 price target on
Casey stock, 8% above a recent $194.
In addition, Casey’s trades at just
over 11 times enterprise value to earn-
ings before interest, taxes, deprecia-
tion, and amortization, or Ebitda. As
Hansen notes, chains have fetched at
least 12 times that figure in recent
mergers and acquisitions. “If there
were to be a deal for Casey’s, it would
not be for less than 15 times,” says
Hansen. “The stock isn’t expensive
for the price you’re paying.”
Time to stock up.B
Time to Stock
Up on Casey’s
General Stores
The fourth-largest U.S. convenience-store chain offers
reliable growth, making it a rarity among retailers
AftertakingaCovid-19hit,Casey’sstockhasreturned
to its winning ways.
Back on Track
Source: FactSet2019 2020 202175150125100$200175Growth Is
In Store
Recovering from
a Covid setback,
Casey’s sales
are expected
to bounce
18.4%
in the company’s
fiscal fourth
quarter, which
ends in April.
P
izza purists may scoff at a
gas-station pie, but Ameri-
cans eat 75 million slices
fromCasey’s General
Storeseach year, making it
the fifth-largest pizza chain
in the U.S. And the conve-
nience-store company has plenty more
to recommend it to investors beyond
its ability to make a mean Margherita.
Investors have long been aware of
the company’s appeal. Casey’s (ticker:
CASY), which owns and operates
more than 2,200 stores across 16
states, had outperformed the S&P 500
index for years, thanks to its double-
digit earnings and revenue growth and
expanding footprint. Then, Covid-
hit, and the growth understandably
slowed, as did the stock gains. Casey’s
underperformed the S&P 500 by one
percentage point over the past year.
The pandemic, however, will end.
And Casey’s growth is likely to reaccel-
erate as customers return from lock-
down and the company scoops up
smaller rivals. That makes the Ankeny,
Iowa, company a rarity in retail—a
reliable, compounding growth story in
a sector that has been buffeted by dis-
ruption. A recent pullback offers an
opportunity to get in ahead of what
could be another strong cycle.
“In retail in the U.S., it’s tough
to find sustainable visible growth
because of disruption and economic
impacts, but Casey’s is relatively im-
mune,” says Markus Hansen, portfolio
manager at Vontobel Asset Manage-
ment’s Quality Growth Boutique.
“Until Amazon can deliver you a can of
Coke or a bag of candy in 15 minutes,
By TERESA RIVAS