Casey’s Delivers Strong Print On Gas Margins; Analyst Boosts PT

Despite a challenging business environment, convenience store chain Casey’s General Stores beat analysts’ earnings expectations and was essentially in line with revenue forecast for the first quarter of fiscal 2021, which ended on July 31.

Casey’s (CASY) offers self-service gasoline, grocery items and freshly prepared food items in over 2,200 stores. The company’s first-quarter EPS rose 40.3% Y/Y to $3.24 despite lower revenue and handily exceeded analysts’ estimate of $2.13.

Earnings gained from efficient expense management and higher fuel margin driven by the company’s centralized retail pricing strategy and procurement improvements.

Revenue dropped about 20% to $2.11 billion with fuel same-store gallons sold declining 14.6% as social distancing restrictions amid the pandemic impacted demand for fuel. Lower store traffic also caused a 9.8% fall in the same-store sales of the Prepared Food and Fountain segment.

However, the demand for essentials amid the current crisis helped in driving a 3.6% growth in the Grocery and Other Merchandise same-store sales.

Keeping in view the shift to digital channels, Casey’s says it will continue to invest in new digital capabilities. The company’s digital revenue surged by a whopping 162% in the fiscal first quarter.

Following the results, RBC Capital analyst Irene Nattel increased the price target for Casey’s to $180 from $176 while maintaining a Hold rating. In a research note to investors, the analyst highlighted the company’s “solid” first-quarter results considering the COVID-19 disruption and earnings beat driven primarily by stronger than expected gas margins.

Nattel is positive about Casey’s strong financial position given its leverage below 2-times expected next-12-months EBITDA. (See CASY stock analysis on TipRanks)

However, she concludes: “we remain cautious with regard to the magnitude/timing of potential lift from the value creation plan pending improving farm income and greater insight on the timing/contribution of initiatives.”

Casey’s stock has risen about 7.0% year-to-date and the average analyst price target of $183.43 reflects an upside of about 7.7% in the coming months. The Street has a cautiously optimistic Moderate Buy rating for Casey’s based on 3 Buys and 4 Holds.

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