Wait, are you suggesting there are other convenience stores besides 7-Eleven and Circle K? There are — and one is a public company that’s doing very well for shareholders.
You’ve probably never heard of it unless you live in the Midwest. Casey’s General Stores (NASDAQ:CASY) is an intriguing 53-year-old, 1,700-store chain that also operates under the names HandiMart and Just Diesel and stretches across 11 states (but is mostly located in Iowa, Missouri and Illinois).
Casey’s carries all the things you’d expect at a convenience store, but it also offers pizzas, burgers, and breakfast items. So it’s like a combination of convenience store and Denny’s. The best way to get a feel for the chain is to visit its website. One of Casey’s primary advantages is its rural locations, which protects it from competition.
There are pros and cons I can see in the company’s financials. For starters, overall sales were up 15% in the last quarter (year over year). Casey’s primary revenue generator is gasoline sales, which account for 73% of sales. But gas has thin margins. The company really makes its money on the grocery products, where same-store sales grew 6.3%. Food and drink sales really exploded, with same-store sales up 12.6%.
There are a couple of things to keep an eye on. SG&A expenses have been increasing, which has been cutting into operating earnings.
Free cash flow was great in Q1 2011 at $115 million but negative $75 million in the ensuing two quarters. The company carries $675 million in debt and only $46 million in cash.
None of this is raising major red flags, but it’s important to watch that cash flow. The company’s net income is slated to rise 20% this year, 14% next year, and 10% annualized over the next five years. It presently trades at a P-E of 18, though, so it’s very pricey in comparison to earnings.
Management is looking to increase store count by about 5% each year, so as long as that free cash flow is being tamped down via expansion, I’m O.K. with it. The stock is pricey, though. I’d suggest buying in only if it falls back into the mid-40s.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities.
