Is Casey's General Stores the Most Convenient for Your Portfolio?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Casey's General Store (NASDAQ: CASY  ) is a quickly growing regional convenience store and gas station business based in the Midwest, but is it worth the premium pricing? The company is adding new locations to its nearly 2,000-strong store footprint and has delivered some impressive store-level sales figures for gasoline, groceries, and prepared food items, though overall top and bottom lines came in under analyst expectations. The convenience store business is compelling in that the fuel segment, while brutal on margins, gets people into the stores, where margins are high and product innovation is driving growth. Still, at almost 18 times earnings, this is a richly valued player in the space. What's an investor to do?

Gas, Slurpees, and pizza
Casey's third quarter generally sees weakness in gasoline sales, and while the just-ended quarter did show a relative weakness in average margin (just $0.14 per gallon), same-store gallons sold rose a healthy 3.8%. The story was much better across the company's other segments, with groceries growing store-level sales at 6.5% and prepared foods and fountain drinks up a mouthwatering 10.7%.

Margins on gasoline are always weak (for reference, a "strong" margin is around $0.17 per gallon), and the name of the game here is convenience-store margins. Groceries at these stores perform great, with a margin of more than 30%. The company is finding even more traction after installing additional coolers. Management's annual goal is 32.3% with same-store sales of 5%. Margins for prepared foods sat at slightly more than 60%, with an annual goal of 62%. Annual same-store sales are targeted at 9%.

Casey's is expanding via freshly built locations and acquired ones. It currently has 32 Stop-N-Go's contracted for acquisition during 2014, and is building 25 locations.

How does it stack up?
There's no denying the strength of Casey's' business at the moment, as well as going forward throughout 2014. With such strong same-store sales figures, the expanding store footprint looks like a great strategy for allocating capital and earning a solid ROIC.

At 18 times earnings, though, the stock is rich compared to some peers. Murphy USA (NYSE: MUSA  ) is a slightly different business in that it keeps its locations within a couple miles of Wal-Mart's -- as a rule. The company sells unbranded gasoline at discounts (think $0.12-$0.13 per-gallon margins) to its branded brethren and makes its money, like Casey's, inside the stores. In its recent quarter, Murphy USA showed per-store nontobacco merchandise sales growth of more than 7%. Throughout 2014, management expects to grow its store count by about 40 locations.

It doesn't quite have the flashy store-level sales figures that Casey's does, but Murphy USA trades at around 11 times its forward earnings -- a substantial discount to Casey's. Both companies are growing organically and via new stores, albeit with different strategies of getting there. On an EV/EBITDA level, Murphy trades at just 6.16 times trailing EBITDA, while Casey's trades at 8.66 times.

Murphy offers better downside protection here, even if the growth isn't quite as attractive. In the words of Warren Buffett, the best way to make money is to not lose it. Casey's is a strong business with talented capital allocators at the helm, but it's not the best pick today.

Better picks for your portfolio
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 14, 2014, at 7:09 PM, theister wrote:

    Hi Michael,

    I live in Iowa and think you should visit the midwest and get a first hand look at Casey's General Stores....I think you will change your mind about the company being over valued Although they are both convenient stores, Murphy USA and Casey's are different in execution of their business plan. Casey's, in the Midwest and in my opinion, is in a league of their own. Every time I walk into a Casey's General store, I am amazed the number of people in the stores and the breadth of their product line. I look forward to their next earnings report and your comments.

    As of now, I do not hold a position in CASY or MUSA.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2872758, ~/Articles/ArticleHandler.aspx, 8/31/2015 5:05:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
CASY $106.08 Up +0.39 +0.37%
Casey's General St… CAPS Rating: *****
MUSA $50.25 Up +0.15 +0.30%
Murphy USA Holding CAPS Rating: **