Shares of Casey General Stores (NASDAQ:TIME) have done generally well over the past two years. In November 2021, I thought Casey was showing strong execution, although he was still being valued aggressively by investors.
Back then the company had seen continued operating momentum after the pandemic provided a windfall to 2020 earnings. The long-term role of consolidator was to be applauded, although I described the prevailing earnings multiples as a little demanding in due to a favorable interest rate environment.
By the end of 2020, Casey’s had grown to operate over 2,000 convenience store chains and of course gas stations in the central and eastern states of the United States. The company has a deliberate strategy of focusing on stores located in smaller towns, typically under 5,000 people, creating deep roots in the community with heritage and high service being other key distinguishing factors.
The company was in competition with companies like Sunoco (SUN), Speedway, Couche-Tard (OTCPK:ANCTF) and 7-Eleven, many of which have tried to consolidate their operations. Casey has certainly taken his role as a consolidator seriously, having doubled his sales from $5 billion in 2009 to $10 billion in 2019. The truth is, this achievement was based on a 50% increase in units , with inflation and comparable stores. sales accounting for the rest of the growth.
In the 2020 pandemic year (which ended in April of that year), the company saw a 2% drop in sales to $9.2 billion, while operating profit of $395 million hit 4% and change, resulting in earnings of $7.10 per share. With the pandemic really starting to impact Q1 2021 results, the company was seeing lower revenue (amid lower fuel prices) but also much higher margins. The company took the opportunity to acquire Buchanan Energy, the owner of Bucky’s Convenience Stores, in a $580 million deal.
Until November 2021, shares were trading at $194 per share, after shares peaked at $220 in the spring of the year. In the meantime, the company has occasionally entered into supplemental agreements and in June 2021, the company reported annual earnings of $8.38 per share for that fiscal year. With stocks trading at 23x earnings and reasonable leverage, I wasn’t too impressed with the risk-reward picture. The market liked the consolidator role, but I thought valuations got a little rich, having lifted all the boats.
Since trading at $194 per share nearly a year and a half ago, the shares have been trading in a range between $180 and $250, now trading in the middle of the range at $213 per share , still marking returns of 10% since the end of 2021.
In the meantime, it’s been pretty quiet on the business side. In the summer of 2022, the company job its fiscal 2022 results with revenue growing to $13.0 billion on which reported operating profit of $440 million and net profit of $313 million, down to $9.10 per share. The company ended the year with nearly 2,500 stores, having added just over 200 stores during the year. Net debt of $1.5 billion made leverage not an issue as EBITDA improved to $800 million, for debt ratio just below 2x .
The company had a strong start to 2023 with first-quarter sales up 40% to $4.5 billion, earnings per share up ninety cents to $4.09 per share . Second-quarter sales rose 20% to $4.0 billion (as growth in both quarters was driven by higher fuel prices), with profits up more than a dollar at 3 $.67 per share. That means earnings were up almost two dollars to $7.75 per share for the first half of the year, and if we factor in seasonality, I think a figure of $11 per share should be (easily) achievable this year.
Net debt decreased to $1.3 billion, with EBITDA reaching more than one hundred million euros compared to last year, ie in the first six months of the year. This means that the EBITDA tends around the billion, for a leverage ratio just over 1 times now.
With the company now essentially trading around a 20x earnings multiple, that multiple has come down a bit over time, although I’m afraid that’s attributable to the high margins reported this year, as it’s debatable whether this can be maintained on the cycle.
On the positive side, following a lack of acquisitions lately, the company has quickly deleveraged its balance sheet, giving it ample firepower to pursue upcoming deals likely needed to drive growth.
At a multiple of 20, attractiveness is not imminent, but it does get a bit more investor friendly, although given the company’s positioning and current interest rate levels, I’m looking for a entry point below $200, preferably in the $180 before getting involved.