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Bull of the Day: Caseys General Stores (CASY)

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Casey’s General Stores (CASY - Free Report) is a Zacks Rank #1 (Strong Buy) that operates convenience stores under the Casey's and Casey's General Store names.

The stock had a nice run higher earlier in the year, but after a recent earnings beat, almost all the 2021 gains have been erased. Investors are now looking at why the stock has sold off and eyeing levels to buy the dip.

About the Company

Casey’s stores offer a selection of food, nicotine products, automotive products, and many more items you would typically find in convenient stores. Loyal customers are a fan of their pizza, but if you have traveled in the Midwest, you might be familiar with the company as a gas station. Casey provides gasoline and diesel fuel in over 2000 stores in 16 states.

The company has almost 18,000 full time employees and is headquartered in Ankeny, Iowa. Casey’s has a market cap of $7 Billion and has Zacks Style Scores of “B” in Growth and Value. The stock has a Forward PE of 22 and pays a 0.75% dividend.

Q1 Earnings

Earlier this month the company reported earnings, seeing a 13% EPS beat. The company also beat on revenue and raised its dividend by a penny. Adjusted EBITDA came in above expectations and inside SSS were up 8%.

Casey’s also affirmed FY22 fuel and inside SSS, which indicates growth of mid-single digit percentages.

CEO Darren Rebelez had the following comments on the quarter:

“Total revenue was up across the board as guest traffic returned throughout the quarter. Inside gross profit was up almost 17% due in part to the merchandise resets and strategic sourcing initiatives the Company implemented earlier this calendar year.”

While the numbers looked good, the stock sold off to prices not seen since February.

Pullback Unjustified

Jefferies was out with a note shortly after earnings making the case that the post-earnings sell-off was not justified. The firm believes the year over year opex growth created some fear, but there are many positives that were overshadowed by the headline.

Jefferies points out that elevated fuel margins, longer-term growth due to M&A, and positioning relative to peers as reasons as why they have a Buy rating. The firm has a $237 price target, about 25% higher from current levels.


Jefferies isn’t the only analyst that likes the stock, as estimates are going up across the board.

Over the last month, estimates for the current quarter have been raised by 8%, from $2.57 to $2.78. For the current year, we have seen jump of 11% in that same time frame.

Since earnings, both Deutsche Bank and Northcoast Research raised price targets to $256 and $247 respectively.

The Technicals

CASY was up almost 30% on the year when it hit an all-time high of $229 back in May. However, the stock is now trading under $190, or 17% lower.

The stock is below all moving averages, with the 50-day at $197 and the 200-day at $202. Eventually, the bulls will need to recapture those levels for technical analysts to get bullish again.

In the meantime, investors should look at $180 a as long-term support area to accumulate. If the market does see a sell off, CASY could fall in sympathy to the 61.8% Fibonacci retracement at $160. This area between $160-$180 should a buy zone for anyone interested in the stock.

Bottom Line

Those that have driven though the Midwest are familiar with Casey’s. Their gas stations and convenience stores are a staple on any road trip in the middle of the country.

The stock has had a rough summer, but the recent sell off isn’t justified. Estimates are going up and the company has a lot of growth potential as it expands through M&A. Additionally, with gas prices elevated, margins will continue to help the bottom line.

With the recent sell off, the stock might need time to digest. Investors should be eyeballing current prices as an opportunity for long-term entry.

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