But one must tread carefully — this slugger is not to be trifled with.
Casey’s has a 1,700-store footprint across 14 states. It’s a rural operation, with some 60% of stores in areas with fewer than 5,000 residents, so that makes it a go-to operation with a de-facto monopoly in the general-store category.
In its fiscal third quarter, the company whiffed big-time. Revenues missed on a 5% increase, EPS came in 7% lower year-over-year, and operating margins fell, as did net margins.
For this at-bat … well, things weren’t much better.
Casey’s Q4 adjusted EPS was flat with last year at 60 cents, missing estimates for 62 cents. Revenue rose 3.2%, missing the $1.83 billion estimate by $20 million.
For the fiscal year, diluted EPS came in at $2.86, down from $3.04. This was primarily weighed down by same-store sales, which really got clobbered. The company had hoped to see a 6.2% increase, and instead grappled with a 0.8% uptick. CASY faced the same challenges with the prepared food and drink menu, where it wanted to see an 11% same-store increase and instead came in at 8.6% — still respectable, but short. In this category, it did beat its 61.1% gross margin goal by hitting 61.8%.
Looking at the other important metrics, Casey’s matched its stated goal of increasing gasoline same-store gallons sold by 1%, and beat its goal of increasing the margin to 14 cents per gallon by hitting 17 cents.
As for next year, management is very transparent with its goals (which I love):
- Increase same-store gasoline gallons sold 1.5% with an average margin of 15 cents per gallon.
- Increase same-store grocery and other merchandise sales 5% with an average margin of 32.3%.
- Increase same-store prepared food and fountain sales 9% with an average margin of 62%.
I think these are all attainable, but I have concerns about the macro retail environment.
It’s also important to read the conference call transcripts, though, because there are things one might not consider about the business at first glance. It isn’t just about servicing customers with a dominant local brand. Casey’s sells stuff like coffee and cheese, and that means it is exposed to the commodity markets. It sells cigarettes, but now there are rumblings that the dollar stores — like my favorite, Dollar Tree Stores (DLTR) — are going to offer those. So this is one of those ballplayers that might have a great swing, but he’s facing some tough pitchers.
I think CASY is holding its own in a tough environment, and even the $653 million in long-term debt isn’t of terrible concern. However, where I once saw this as an interesting value or growth play, I now see myself where I saw myself as a kid playing baseball — on the bench.
Analysts see five-year growth at 10% annually, and on FY14 estimates of $3.44, that gives us a fair value of around $35. However, the stock currently trades at $61.
I don’t get it, and I don’t want to get beaned, so I’ll stay in the clubhouse.
As of this writing, Lawrence Meyers was long DLTR. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.