Analysts Raise Price Targets on Casey’s General Store Shares

Casey’s General Store NASDAQ: CASY it peaked before the release of FQ3 and is correcting afterward, but I don’t think the sell-off will continue for long. The company’s results were tepid and mixed, but they revealed the resilience of a business model that has provided value to shareholders for years. Results findings include stable revenue, better-than-expected profitability, cash flow, capital returns and equity capital, which increased 10%.

The operational quality and trends leading to these results have stocks rising on 1-, 3-, 5-, 10-, and 20-year comparisons and headed higher this year and next.

Casey’s mixed quarter isn’t a problem for analysts

Casey’s had a mixed quarter, with flat revenue that missed Marketbeat.com consensus estimates, but margin, cash flow and profits above the mark. Revenue came in at $3.33 billion, flat year over year and 600 basis points below consensus, but that’s the worst news. Revenue is driven by an increase in the number of stores and higher domestic sales offset by lower fuel revenue.

Domestic holdings rose 4%, 9.1% over two years, thanks to strength in grocery and convenience foods. Convenience foods rose 7.5% on strength in drinks and sandwiches as consumers turn to lower-priced offerings. Gas offsets decreased slightly, by 0.4%, compounded by the decline in realized prices.

The margin news is the brightest spot in the report. Domestic margins expanded due to strong sales and fewer hours worked, resulting in an increase in segment operating profits of 11.3%. This was offset by a -2% decline in fuel profits and higher operating costs associated with more stores, leaving GAAP earnings at $2.23. The $2.23 is down 13% year over year, but is $0.19 or 900 basis points higher than consensus, strengthening the outlook for capital return and shareholder value.

Casey’s General Store creates value for investors

Shares trade above the broad market average at 21X current year earnings, but you get above-average returns. Balance sheet highlights include reduced cash from acquisitions offset by increased assets, debt reduction and a 10% increase in equity capital. The cash flow is used to grow the company, buy back shares and pay dividends, which are reliable if not robust.

Share repurchases in the third quarter reduce the stock’s year-to-date count by 0.6% and are expected to remain strong through year-end and next year. The company spent $30 million on buybacks in the quarter and has $310 million remaining under authorization. The dividends are not robust at a 0.6% yield, but they are incredibly safe at a 14% yield and growing. The company has increased its distribution every year for 24 years and is on track to make another one in FQ1.

Analysts Raise Bar for Casey’s General Store

Analyst activity following the third quarter release is mixed for Casey, but the results are bullish. The top end of the range was lowered and the bottom raised, narrowing the range, but there were more revisions up than down, leaving the consensus higher than before the release and 5% above the current move of prices. Among those raising targets are Deutsche Bank, JPMorgan Chase & Co and RBC, which have a three-way consensus of $306, matching the broader consensus. The consensus increased 7.5% after the release and will likely increase throughout the year.

The technical prospects are good. This stock is in a long and sustained uptrend, driven by its growth, operating quality, cash flow and dividends. The stock peaked prior to release and is now retreating with the potential for solid support near current levels. Assuming the market holds support near $290, it should recover soon and set new highs by mid-year. If not, this stock could move back to the long-term EMA near $280 before rebounding and continuing its uptrend.

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