Is It Time to Look at Casey's General Stores?

For those who call the American midwest home, the convenience store chain Casey's General Stores (NASDAQ: CASY  ) is likely a part of everyday life. If you're like me, on the other hand, who grew up on one coast and lives on the other, the business could just as easily be something from Blazing Saddles. But, as it turns out, the stores, which span more than 1,700 locations in 11 states, are doing well, and may be poised for further performance as earnings grow and margins expand. Does your portfolio need a quick stop into Casey's General Stores?

Business overview
As mentioned, Casey's General Store owns and operates convenience stores and gas stations, distributing fuel to approximately 70% of the 1,700-plus locations.

For investors, the company has been a success with a stock price up nearly 50% over the past two years. Much of the company's growth in recent times has been a result of broader product offerings inside the stores themselves. Even though gas stations are a steady business, the low margins often make them unattractive investments without the convenience store sales. Casey's has emphasized pre-made meals in addition to delivery pizza to help bolster sales and margins -- and it's worked.

The company reports its recently ended quarterly earnings on Friday, so what should investors expect?

More of the same?
Though we won't know exactly until the 10-Q is out, Casey's has been doing a formidable job managing its fuel costs. With the information available so far in 2013, Casey's fuel margin is $0.146 per gallon -- ahead of management's internal guidance, but not as high as some competitors. For example, interstate truck stop giant Travel Centers of America (NYSE: TA  ) recently showed a margin of $0.17 per gallon.

Managing the fuel cost will not necessarily buoy profits, but it allows for the convenience store sales to outshine costs, and boost margins in a material way. This is what investors want to see come Friday, and what prospective investors should be looking at when evaluating the stock.

Buy, sell, or hold?
Since we mentioned it, let's compare Casey's to Travel Centers. On a forward earnings basis, there is a massive difference between the two companies. Casey's is trading at a relatively rich 18 times earnings, whereas Travel Centers is less than 7. Travel Centers' enterprise value is trading at under four times trailing EBITDA, while Casey's trades at 9.7x EV/EBITDA.

Travel Centers, though cheap on the surface, does have some issues, as I have laid out in prior articles. The company's cap ex spending has ballooned, while profits have grown much slower. Management has issued equity and debt offerings multiple times in recent years, diluting shareholder value along the way.

Casey's looks to be the better business, while Travel Centers looks to be the more appealing pick on a value basis. For me, neither warrants a closer look at this point in time. Investors should keep an eye out, though, because any substantial downward movement in Casey's stock could provide a buying opportunity for this growing regional player.

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