Casey’s General Stores (NASDAQ:CASY) Pops After Mixed Results

A Surprise Report From Casey’s General Stores

Casey’s General Stores (NASDAQ:CASY) just delivered its fiscal Q1 ended July 31st. The report can only be called mixed for this convenience store, there are good figures and bad, but the sum of the parts I think will surprise you. While the company suffered a massive decline in revenue profits grew on a YOY basis and by a substantial margin. The key driver of the gain is margin, Casey’s management has fuel margins up 1400 basis points over the last year, and the company is delivering profits far above consensus figures.

Casey’s Mixed Q1 Leads Shares Higher

Casey’s top-line figure of $2.11 is not great and worse when you consider the store-count is up on a quarterly and YOY basis. The revenue decline is attributed to reduced store traffic due to COVID-induced traffic patterns and missed consensus by 0.5%. A narrow margin indeed but still worse than expected.

The positive surprise is on the bottom line. The GAAP EPS is $3.24 or $1.15 above the consensus due to increased fuel margins and expense controls. While comp fuel gallons and inside traffic fell, both more than consensus, the increase in YOY fuel margin and spending controls helped drive EPS to a 40% YOY gain.

Fuel profits rose 34% from the previous year despite a 14.6% decline in gallons sold. Looking forward, assuming fuel sales increase, the company is well-positioned to see earnings growth accelerate. Inside sales had some weak and strong points with one offsetting the other for flat YOY comps. The remaining gain in the margin is due to cost-cutting and expense controls that are expected to stick in the coming quarters.

Notably, although comp sales fell the number of customers increased as did the number of recurring customers. Casey’s reports that Casey’s Rewards membership grew 25% over the past year and tops 2.5 million customers.

The Valuation And Consensus Targets Are Off

Shares of Casey’s were trading about 25X earnings ahead of the report and have only increased the premium in the early portion of the session. But the valuation is all wrong because the consensus targets are wrong. The consensus for fiscal 2021 EPS is a mere $6.81, half of which the company earned in the first quarter of the year.

The current target for Q2 is $2.44, enough to put the company within $1.00 of the FY consensus, and I expect that figure will be beaten as well. There is no guarantee that fuel margins will remain as high as they are but they don’t have to for EPS to beat consensus. At the current pace, EPS is going to top $8.00 per share and put the valuation closer to 22X earnings.

The bottom line, Casey’s is about to have some serious upward revisions to its earnings outlook that will put the value back in this stock (and drive share prices higher.

Casey’s Pays A Dividend

Casey’s General Stores pays a dividend albeit a small one in my opinion. The annual payout is $1.28 which comes out to about 0.75% in yield. What you get for your money is a safety though, the payout ratio is a cool 25% of earnings (based on the FY consensus) or 10% on a quarterly basis so little reason for investors to fear it'll get cut. The company has a solid history of dividend increases too, a little more than 20 years, but there has been no increase this year and one is due. Perhaps with earnings so robust, the board will increase the payout next quarter. We’ll see.

The Technical Outlook: Casey’s General Stores Is On The Verge Of A Break Out

Shares of Casey’s corrected along with the broad market when COVID struck and made a nice Vee-bottom recovery since. The stock is lagging the broader market by a bit, it has only now reached its pre-COVID levels, but looks ready to break out to new highs. Today’s action has the stock up more about 5.0% in early trading and pushing into new all-time-high territory. A firm break above the $182 level would be a trigger to buy that could lead to a 10% to 20% gain over the next few months.