‘Classy’ Casey’s looks good for the long haul
Dear Mr. Berko:
While traveling by car, we stopped in Chanute, Kan., for gas and a cold drink at Casey’s General Store. We also bought some fresh pizza, which was heavenly. We stopped at another Casey’s in Norwalk, Iowa, and ate a dozen delicious and fresh doughnuts. We saw a few other Casey’s in Missouri and Illinois, where an employee told us that the company is publicly held. Please tell me about Casey’s and if it is a good stock.
P.L., Bethlehem, Pa.
Dear P.L.:
Have you ever heard of Ankeny, Iowa; Blue Springs, Mo.; Basehor, Kan.; St. Francis, Minn.: Godfrey, Ill.; Wood River, Neb.; or Argos, Ind.? Well, these are some of the typical leafy small towns that dot the landscape of America’s Midwest, where Casey’s General Stores Inc. (CASY-$45.62) operates 1,610 bright, clean and colorful convenience stores.
Last year, these little gold mines sold $6.7 billion worth of gasoline, diesel fuel, over-the-counter pharmaceuticals, milk, bread, beverages, housewares, automotive products, beer, wine, hamburgers, pastries, pizza and doughnuts. We recognize Pizza Hut and Dunkin’ Donuts as the industry leaders, but CASY is the ninth-largest retailer of pizza and doughnuts in the United States.
The convenience store business is tough, like fighting bobcats for a living. Most operators earn onionskin-thin margins and low single-digit returns on invested capital.
But Casey’s is successful for the following reasons: 1) lots of fresh food products; 2) Enormous economies of scale; 3) a location strategy where 1,200 stores are sited in towns of fewer than 5,000 residents and are often the only game in town; 4) its operations are completely integrated; 5) CASY owns all of its stores and distribution centers; 6) it owns all of its trucks and delivers 77 percent of its own gasoline; and 7) CASY’s fresh food division generates gross margins of 62 percent. These benefits give the Ankeny-based company a significant advantage over the competition in a very fragmented industry.
In the past 10 years, the company’s store count has grown from 1,305 to 1,610; its book value has doubled to $12.75 per share; revenues have grown more than threefold to $6.7 billion; and dividends have increased sevenfold to 54 cents as net profit margins improved by 50 percent to an impressive 2.1 percent. Since 2001, CASY’s share price has risen from $15 to $45 earlier this year. This year, earnings are expected to rise by 18 percent to $3 per share, and 2012 earnings are projected at $3.55. As the store count grows to 1,725 in 2015, earnings could reach $5 a share.
Casey’s is a clean company with a fine balance sheet, a good income statement and honest management. It doesn’t pollute the environment and enjoys good relations with its 8,100 employees. The company has almost no competition, solid management and a captive audience, and employees are not unionized. The company has a great balance sheet, superb inventory controls and good marketing people.
I think the stock, in the next 10 to a dozen years, could trade at the $95 to $110 level, providing CASY is not bought out by a competitor sooner. This little-known but classy stock looks good in any conservative long-term growth portfolio.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or email him at malber@adelphia.net. ©2011 Creators.com
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