Analysts from boutique investment firm Jefferies recently held a meeting with the management team at Casey’s, and their conclusion is clear – they are “incrementally more bullish” on this Iowa-based company.
One key factor contributing to this optimism is the expectation of structurally higher fuel margins. Both Jefferies and Casey’s believe that firms with a significant scale advantage and an improved fuel purchasing and transportation strategy will benefit from higher margins. Over the past few years, Casey’s has successfully increased the volume of fuel transported by its own fleet and expanded its short-term contract purchases. This marks a significant shift from the previous practice of solely relying on purchasing fuel at the lowest rack numbers available.
Jefferies also commends Casey’s expansion into new geographic regions, such as their recent acquisition in Texas, which brings the total number of states with Casey’s sites to 17. In the past, the company acquired 63 stores in Kentucky and Tennessee, demonstrating their commitment to growth and market penetration.
What sets Casey’s apart is its ability to efficiently service stores within a 500-mile radius of its distribution centers located in Iowa, Indiana, and Missouri. Jefferies believes that there is still plenty of untapped potential and “white space” for additional stores through new builds and acquisitions. This is due to Casey’s ability to make its sites work effectively in towns with populations ranging from 500 to 20,000.
To support this growth strategy, Casey’s outlined a three-year plan last June that aims for 8%-10% EBITDA growth. The company plans to outpace capital expenditures and aims to add 350 new stores through acquisitions or new builds. Jefferies estimates that half of this target will come from deals, with the other half tied to organic growth.
Jefferies has set a price per share target of $315 for Casey’s. With the company currently trading on the Nasdaq as CASY, shares closed just above $283 on Tuesday.
