Has Saul lost it? Investing in general stores???

Casey’s General Stores CASY

You are probably wondering “Has Saul lost his mind? What in the world is he thinking, investing in a company called Casey’s General Stores?” Good questions! Well I’ll tell you a little about Casey’s.

Casey’s owns and operates about 1900 out-of-the-way gas station/convenience store/restaurants/pizzerias in the midwest. It’s centered in Iowa, Missouri and Illinois, but they have stores in 14 states. (That leaves 36 more to expand into). With 1900 locations, you can guess they weren’t born yesterday, and in fact they were founded in 1959. The founder’s son is still a director of the company, while management consists mostly of longtime insiders.

Why do I say out-of-the-way? Well 58% of the stores are in towns with less than 5000 population. Is that out-of-the-way enough for you. They are usually the only gas station alternative, and certainly the only pizzeria around.

Their revenue is based on low-margin gasoline sales, but the gas brings people into the stores and they make their money on high-margin prepared foods including sandwiches and burgers and bakery items as well as the pizzas. When gas is cheap, like now, revenue goes down, but earnings are going up for several reasons:

Margins are higher on gas when it’s cheaper. If they mark up gas by 17 cents a gallon, the percent margin is higher on $2.50 gas than on $3.50 gas, and more gallons sold means more 17 centses.
Low priced gas brings more people into the stores, and they have more disposable income to buy more high-margin prepared items.
They are introducing more high-margin prepared items.
They are converting stores to 24-hour stores which makes them more profitable.
They are introducing pizza delivery on a trial basis in certain locals.
They are opening new stores and remodeling others.
Same store sales are up, especially for prepared foods (up 12%) and groceries (up 7%). Their prepared food and fountain items have a margin about 60% and their groceries and other merchandise have a 32% margin, so they are definitely not just scraping by.

And by the way, a reliable calculation has it that the real estate value of all the properties and stores they own (at original purchase price) comes to 43% of their capitalization, which gives them a nice cushion. They not only own both the stores AND the land in the vast majority of cases, but they finance most of expansion out of cash flow, AND pay a dividend too.

And they are building a second distribution center in Terre Haute, Ind., which should open in 2016. This indicates possible expansion into the US SouthEast, where there are plenty of small towns.

So how are they doing? Here are their earnings for the past couple of years. Remember that their fiscal year ends in April, which was just reported:

Jul   Oct   Jan   Apr 
XX    XX    XX    60  =  $2.86
143  101    33    54  =  $3.31
134  128   101   105  =  $4.68

Clearly, earnings are accelerating, especially the last few quarters. They have a 22.6 PE and a current rate of growth of earnings of 41.4%, which gives them a 0.54 1YPEG.

This is also a pretty recession-resistant business. Their sales were down just 4% in 2009, in the Great Recession. That’s really incredibly good.

It has a relative monopoly in the small towns because the big companies don’t bother to compete. People apparently love Casey’s stores, and when the young people move to the bigger towns and cities they seek out Casey’s there too for that down-home feeling.

For all thoses reasons I’ve decided to take a small position.

PS, When I compare this with ZOES which has a PE in the hundreds, and which has 10 cents in trailing earnings compared with $4.68 for CASY, it seems to me that there is no comparison.

But that’s just my opinion.


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Earnings from gas shouldn’t go up because gas is cheaper. Margins should go up, but not profits if they make a constant 17c per gallon (unless they sell more gallons, which is probably the case).

I know you don’t put a lot of stock in analyst estimates, but it’s strange that estimates for FY16 at $4.58 are lower than FY15 actual of $4.62 (these figures are from yahoo finance). It’s over 11 analysts; the range is huge too, with a low of $4.20 and a high of $5.37.


I have never been to a Casey store, do they sell liquor/beer/wine there? Is Casey a brand name in their location or have brand recognition? The margin on gas price confused me too. I think I understand that 17c is a higher percentage of 2.50 vs 3.50, but I guess I don’t understand that a gas station would be able to keep the same margin if the price went from 3.50 to 2.50.

I’ll do my own research, but thoughts on debt and cash on hand?

Thanks for the interesting find and thoughts,
no position in CASY


First of all, by your screen name, I think I owe you a “thank you” for your service. It is heartfelt, even though it is merely pixels on a screen.

I live in the Midwest, where Casey’s is very much a trusted brand. The reputation of their pizza approaches legendary status in these parts (I can’t vouch for it personally, I don’t buy much pizza, but my daughters love it).

As to your question about alcohol sales, that would vary by state. The Midwest is home to some really byzantine liquor laws. In my state of Indiana, I don’t think they can sell cold beer, but maybe warm beer by the case only. I am not sure about other states. I suspect it is a “it depends” answer.

BTW, I live in Terre Haute, which is a town of about 50,000 people. There are two Casey’s in the city limits, and several more in surrounding small towns. It is in those small towns where Casey’s rules supreme. There is little or no competition for gas and convenience foods, and there are a LOT of small towns in the Midwest and South.

Tiptree, Fool One guide, no position in CASY (yet :slight_smile: )


When I left my home town for the military in 1971 the population was 602. In the 44 years since the town has grown from this sleepy little farm and ranch community of 602 to a thriving metropolis of 1200 souls, doubling in only 44 years. LOL. Back in the day there was the Post Office, the Bank, a hardware store, two groceries, 4 gas stations, (full service, with attendant, and garage mechanic), a drug store, a cafe, and a funeral home.
Today the Post Office remains, as well as the bank, and the funeral home.
In the early '80’s Casey’s came to town and the Casey’s has been the center of activity since. In the decades since I left dozens of farms have consolidated and many families have moved. Some farms have been sold and developed into subdivisions and the folks that live there drive 20 to 30 miles to the nearest city for work. So when they come home, Casey’s is the place to stop for gas, milk, eggs, bread, and I guess pizza, though I have never bought pizza there, and yes they do sell beer, but I don’t think wine or hard liquor. It is the place where people stop in the morning to grab their coffee as they head to work, the place they stop in the evening to fill up the car etc. and they are ubiquitous in those little towns all over Missouri, and eastern Kansas. In my former home town if you want anything other than a loan, a baptism, or a burial, you better hope it is inside the Casey’s or you have to drive at least 7 miles, perhaps 20 or 30 one way. I have not traveled up to Iowa, but I am sure it is the same there. I have passed through many little towns in Missouri and Kansas and eastern Oklahoma, they all look the same these days, old brick buildings boarded up or turned into antique shops, maybe an active garage, or hair dresser, those seem to be ubiquitous as well, and then the Casey’s. It is always the newest building in town and always busy.
Just my observations.


I found them in Minnesota. They are generally the best alterative.

This is on my screen now.

Thanks Saul.


I did a quick and dirty estimate for FY16 just using the company’s goals.

Gross profit dollars:

Fuel 325, down from 351. This is using 2% sss, 5% increase in stores, and their margin decrease to 16.7 cents per gal from 19.3 last year (not sure why it was so high last year, or why it is dropping so much).

Grocery 641, up from 575. Uses their 6.1% sss, 5% inc in stores, and flat margins.

Prepared 562, up from 476. 10.4% sss, 5% inc in stores, and margins up to 60.8% from 59.7%.

Total gross profits of 1528 vs. 1402, up 9.0%.

They don’t give any guidance for the other income statement lines, operating expenses, d&a, interest, and taxes. But each of those except taxes went up less than gross profit last year, so they are getting positive leverage over those expenses. That probably should continue, so I would think eps would go up AT LEAST 9%, and probably much more.

Which is why analysts estimates of a flat year in FY16 are so strange.


I used to take care of process engineering for 3 plants in Wisconsin and Minnesota. Casey’s was the only game in town at one of my plants (DeForest, WI). Food was about on par with Domino’s (which I don’t care for), but I kept coming back over and over. Kind of reminds me of Best Buy in the way that sometimes it is the only option.

They know EXACTLY where to place their stores.

The only question in my mind is will they be able to continue their recipe for success?


PS OK. You guys have me convinced. ZOES has now moved into my watch list. There are clearly better places for my hard earned money.


Just a bit of anecdotal evidence. I work in Des Moines, IA and live in the area. I don’t live in a small town but have been to many of them as that is so much of Iowa. It is common to see a Casey’s in a small town and not see much else, so yes they are the only show in these towns. Regarding the pizza, it is their breakfast pizza which is sooo good. If we are having a early team meeting or just want to show appreciation to our teams (I work for a financial services company) it’s only one of two things- bagels from wherever or Casey’s breakfast pizza.


I can see the attractions but cannot get past the relationship between the debt and the valuation. Total cash MRQ $48.5m, total debt MRQ $853.6m.

When the valuation falls (as I think it should rather dramatically on historical growth rates) the debt ratio will rise.

A PE of 23 is quite punchy for a retailer, even one with the niche strengths of CASY.


I can see the attractions but cannot get past the relationship between the debt and the valuation. Total cash MRQ $48.5m, total debt MRQ $853.6m.

And the working capital is very stretched.

Current Assets $305K
Current Liabilities $365K

Cash + Receivables $71K
Accounts Payable $227K

I had taken out a small trial position on the strength of the summary, saw the balance sheet and sold out.

(I know I did this backwards - should have looked before committing and I would have saved a few dollars)

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I usually don’t respond, or at least silence is my attempt at being gracious, but since they are just pixels I thought your thanks deserved a response.

So you are welcome, and I appreciate the heartfelt thanks on behalf of all military personal. We do appreciate the attitude of gratitude the general populace shows the military these days (vs. the Vietnam war).

And I might add to my profile the reason for my name, but I’ll explain it here even though you didn’t ask. I started a financial planners course online through a big brand name when I was deployed in 2006, but got fed up with their practices and procedures. That’s when I found The Motley Fool, where I tried investing my own money a bit in buy and hold dividend stocks (there’s still an active board I follow called BMW Method). Long story short I was drawn away from investing but now I am back and more active. I sold all the stocks I had since 2007 at about a 20% gain (not good for those years at all) and bought into companies I have found and researched through this board. OIF as you rightly deduced is Operation Iraqi Freedom, where I was when I started this account, Airborne 11C is what I was when I started it(Airborne Infantry Indirect Fire or Mortarman). I am still in the military, but National Guard as a Signal Officer.

Sorry for the OT.


Hi Saul:

how do you view debt in general and in the case of CASY? The debt to equity
is quite high.


The debt to equity is quite high. (CASY)

Hi tj, They own almost all the stores and the land they are on, and they carry them at purchase price, even though they may have bought them many years ago. And they have plenty of cash flow to cover their debt payments, and they have enough to pay a rising dividend. Beyond that, I don’t know.


Ian just showed only current assets and liabilities… my guess - big difference there is primarily due to the fact that this is retail store chain, you get paid first (or within certain days from credit card companies) whereas your suppliers offer you credit for 60 days or longer in most cases… and the fact that your are not holding the cash and rather investing back into growth.

CASY also has large long term debt… $800M+ which to me is a good thing… for a company like this, i like to see large long term debt, specially in current interest rate environment… this is a steady eddy and low competition business, with a lot of real assets… its the perfect type of business to take large debt so that growth can be funded cheaply(without diluting share holders).

you look at the cash flow and see they are consistently investing $300M+ in capex over last three years and just getting to depreciate $150M last FY… this means they have been funding the growth (of number of stores and categories etc.) out of cashflow and debt… this shows art management and also the fact that management has credibility into market to get such debt.

More than likely, their assets are carried on balance sheet at cost and under current market prices… so we are seeing ore depressed picture with the numbers than what it ought to be.

having said all of these, yes lower debt to equity ratio is always better, in this case however, CASY seems like a normal case and the model is even beneficial to shareholders.


its the perfect type of business to take large debt so that growth can be funded cheaply

I think you have a good point here. I started a very small trial position in CASY without really looking into it as well as I should, then when I looked at the balance sheet I decided it looked stretched. As the market at the time was extremely volatile, I decided that it was a mistake and sold (for safety).

But for some reason I couldn’t let it go at that and decided to look at the company a lot more closely. The company does seem to be running it close to the wind on cash flow, but that is also a characteristic of many ‘outsider’ companies.

Looking at the free cash flow produced per quarter, the company could easily, quickly improve its cash position by foregoing the current drive for expansion. But it prefers to keep its foot on the pedal - which is a good thing if you are looking for growth.

I’m a lot more comfortable with CASY now - and may reopen my position. Just too many other bargains on the table at the moment to make it a priority (AMBA, SWKS…)


TMF1000 has a good post in response to Casey having a lot of debt.


Fool on,


Check my profile to see my holdings


Looking at the free cash flow produced per quarter, the company could easily, quickly improve its cash position by foregoing the current drive for expansion. But it prefers to keep its foot on the pedal - which is a good thing if you are looking for growth.

Hi Ian, TMF1000 (Tom Engel) had the same conclusions as you. He decided they were able to pay their interest without any trouble, they could increase their cash flow enormously by just slowing their expenses on expansion, and they had about $1.6 billion in land and buildings, so he wasn’t worried about the debt. (see post 11920 for the link to his post).


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TMF1000 (Tom Engel) had the same conclusions as you. He decided they were able to pay their interest without any trouble, they could increase their cash flow enormously

Yes, Saul and I also picked up from the 10Q that they have a drawdown facility to cover any short term hiccup. (From memory $100k)


Do you mean $100 million?