Analysts at boutique investment house Jefferies met with management at Casey’s this month and almost immediately told clients that they are “incrementally more bullish” on the Iowa-based firm.
Structurally higher fuel margins are a cornerstone of the investment thesis.
Both parties believe that higher margins will prevail, particularly for firms with scale that can improve the way they purchase and move fuel. In the last few years, Casey’s has moved more gallons with its own proprietary fleet and has expanded the amount of product purchased on short-term contracts. Years ago, Casey’s would just purchase fuel at the lowest rack numbers posted.
The boutique bank also praised the geographic expansion of Casey’s, which entered Texas through an acquisition recently, and now boasts sites in 17 states. Previously, Casey’s bought 63 stores in Kentucky and Tennessee.
Jefferies notes that the chain can service stores within a 500-mile radius of its distribution centers in Iowa, Indiana and Missouri. The investment house believes that there is ample “white space” for additional stores via new builds and acquisitions since the chain can make sites work in towns with population of 500-20,000 in its footprint.
Last June, Casey’s outlined a three-year plan that projects 8%-10% EBITDA growth that should outpace capital expenditures with a target of 350 new stores via acquisitions or new builds. Half that figure might come from deals with the other half tied to new growth.
Jefferies puts a price per share target of $315 on the company. The company, which trades on the Nasdaq with the symbol CASY, closed just above $283/share Tuesday.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
–Reporting by Tom Kloza, [email protected]; Editing by Michael Kelly, [email protected]
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