Are Convenience Store Results Hijacked by the Economy?

Gail is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I’m getting ready to go on a road trip and I know that there will be a few Casey’s General Stores (NASDAQ: CASY) on my path.  When I’m on the road, I look forward to stopping at Casey’s.  I know I’ll find reasonably priced gas, friendly staff, great snacks and clean restrooms.  I like the consistency and know that this is an efficient and well-run company.  You may think it’s silly that I consider this as criteria for reviewing a company.  I believe that the unswerving service provided in each location is a marker for how the company is organized as a whole.

Casey’s concern for its community is also admirable.  During October, the company facilitated a $1+ million donation to St. Jude Children’s Research Hospital via contributions from its customers.

As Casey gets ready to release its quarterly earnings on Tuesday, December 11, I’m taking a look at the numbers I think it will report in its 10Q.  Casey’s last 10Q released on September 10 provided guidance to look for flat or lower results in the upcoming year, so I’ll take that into consideration as well.

On Friday, Casey’s closed at $49.82, very close to its December 8, 2011 closing price of $49.10.  The stock has traded as high as $62.54 this year.  Analysts have it firmly in the “HOLD” category.

What I’m Looking For:

Based on Casey’s guidance, I’ll look for a very minor uptick in revenue with continued efficiencies in controlling expenses.  I’m also very interested in the Energy Initiatives which Casey has put in place.  I’ll look to see which initiatives have been implemented and whether the firm has received the LEED certification for its new store design.  I’ll also be interested to see how these initiatives have impacted its Operating Costs.

I project that diluted EPS should come in around $0.84 per share.

Efficient Operation:

I like to compare how companies and their competitors are doing in regards to certain ratios.  Competitors to Casey include other grocery stores which also sell gasoline including Weiss Markets (NYSE: WMK) and Susser Holdings (NYSE: SUSS).  For Casey, intuitive ratios to look at include Inventory Turnover and Receivables Turnover.  Essentially, I’m looking at how quickly the company can turn inventory into sales and then turn those sales into cash on hand.  This is a good starting place for comparison to its competitors. 

  • Casey has decreased its Days Inventory Outstanding from 34 days in FY2011 to 12 days in FY2012 and its Days Receivables Outstanding from 11 days in FY2011 to 3 days in FY2012.  These are very good improvements and shows that Casey runs a tight ship.  I’ll look for continued improvement when these quarterly results are released.
  • Weiss has also seen some improvements from 151 Days Inventory Outstanding in FY2010 to 41 Days in FY2011 and from 27 Days Receivables Outstanding in FY2010 to 7 Days in FY2011. 
  • Susser Holdings, however, looks even better with an improvement from 26 Days Inventory Outstanding in FY2010 to 7 Days in FY2011 and from 18 Days Receivables Outstanding in FY2010 to 5 Days in FY2011.  This is tremendous and I’ll be taking another look at Susser when it reports its annual earnings early in 2013.  Running an efficient operation is important and it appears that Wall Street has rewarded Susser during the past twelve months.

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CASY data by YCharts

 My Concerns:

Not surprisingly, my concerns center on the US economy.  If the economy takes a turn for the worse, buyers will tighten their belts even more than they have.  Another result could be that US drivers will drive less and therefore purchase less gas.  We’ll see how this plays out in the upcoming months, and certainly will keep an eye on the “fiscal cliff” negotiations.

Bottom Line:

Just looking at Casey’s dividend of $0.66 and the future value of that revenue stream, a year from now Casey should be trading around $52 a share which represents a solid 5% increase from today.  This is a good company to hold for the near future.  If EPS comes in much under $0.84 per share and Days Inventory Outstanding climbs above 18, I would consider selling.

GailPEddy has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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