Casey’s General Stores – ($CASY) Stock pick for 2-18-14

Casey’s General Stores ($CASY) has a unique business model that keeps them protected from the price wars of the larger chains. Many of its stores are in regions with a population of 5,000 or less which aren’t profitable for the bigger retailers, so they have a better handle on their market.

According to a survey, the convenience store market size was around $575.6 billion in 2010. It is expected to grow at a compound annual growth rate of 11% during the period 2011-2014 to reach a market size of $856 billion. Total convenience store sales include fuel as well as in-store sales. These stores are very popular with consumers who are pressured for time, as they have to spend less time shopping.

Gas stations are a highly competitive and low-margin business. During the second quarter, Casey’s did very well on its fuel margin environment, resulting in an average margin of $0.167 per gallon compared to $0.149 per gallon in the same period the previous year. For 2014, the fuel margin is ahead of their annual target, at $0.194 per gallon

They partnered with Hy-Vee in a fuel-saver program. Same-store gallons sold in stores that participated in the fuel-saver program increased about 7% in the second quarter, resulting in overall same-store gallons sold in the quarter climbing 4.2% versus the previous year’s quarter.

The grocery and other merchandise sales grew 10.2%, and this was more than what the company had hoped for. The prepared food and drink category continued its strong performance and grew 12.3%.

On the back of strong performance across all segments, and 5.5% revenue growth versus the previous year’s quarter, Casey’s second-quarter earnings per share soared 24% to $1.06 compared to $0.85 a year ago.

Right now they are 12% off their most recent 52- week high back in December (Price as of 3:38pm is $67.13). I expect you will see them making a run back at the high of $77.58 in the next 3 to 6 months. This is supported by options trades in the market that suggests folks are looking for this level. Also, using Thinkorswim’s Prophet tool (as seen below), it sees the chart for Casey’s in a bullish pattern and is looking for a price in the range of just under $73 to almost $79 in the next several months.

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The stock has a P/E ratio of 19 which makes them fairly inexpensive. Plus, it has a dividend yield of 1.10% so it makes it a bit sweeter for you. They have been doing well in the convenience-store space and has outperformed peers. Looking at the company’s expansion moves, it can grow further and bring long-term benefits to your portfolio.

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