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.
Saul
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