THE

BIG FUNDAMENTAL

The stock market is full of individuals who know the price of

everything, but the value of nothing.
- Phillip Fisher

Caseys General Stores is a convenience store chain that operates in the
Midwest with a concentration in Iowa, Missouri and Illinois. Similar to
Wawa on the east coast, Caseys is a dominant convenient store in the
Midwest region, in which it has offered its well-known specialty pizza

Caseys General Stores (CASY)

since 1984. I believe that Caseys General Stores (CASY) is an

intriguing long purchase for the disciplined value investor.
With the combination of such a stable business model and the
growth prospects that this chain currently enjoys, it is hard to
imagine that even Mr. Market could price this security at such a
discount to its actual value. That being said, several years may
be the time needed to realize such value in the convenient
store business, which may mean that this purchase is not for
every investor. But with this time horizon, this security could
find itself priced closer to $140 than $100, as it currently sits.
This conclusion has been based on the stability of revenues
over the past 5 years, the rapid growth mentality of the
companys executive suite, and the current outlook for prices
of oil and how that translates to sales within Caseys stores.

The companys strategy consists of targeting areas that have no national chain
presence, which fosters loyalty among its customers as well as a relative amount of
pricing power due to less direct competition. This also equates to a majority (57%)
of the stores being located in areas populated by less than 5,000 people, which is not
a problem as CASY claims in their annual report we can often operate profitably at
a highway location in a community with a population of as few as 400.

At this point, it must be confusing to you, as it once was for me, as to why the market
has a rather depreciating outlook for this stock. I have come to the conclusion that,
for one, the convenience store industry lacks the sexiness that cultivates such a
following for those like the semiconductor or solar power industries. Because of this
out-of-favor positioning, a lot of market focus has been driven away from Caseys,
and what is left overcompensates the chains dependence on commoditized oil and
petroleum prices. Despite fuel sales making up 70% of the companys revenues, it
makes up less than a quarter of the Caseys earnings. What many also fail to keep in
mind is that, when prices rise or fall for these commodities, it does not affect how
much or how little CASY can resell the product for, but rather marginally affects the
spread employed between fuel revenues and fuel gross profits. This reflects the
favorable aspects possessed by a convenience store chain, in which, as oil prices
move up or down, the stores markup margin moves more or less in sync with them.

April 2016

Investment Factors
Below are several points that I feel must be made to help further understand the
continued upside potential held by this company.

Continued enthusiasm for new store growth
Caseys General Stores has a goal of building or acquiring 75-113 stores in fiscal
2016, within the same range of their 2015 number that totaled 81. They also are
striving to remodel 100 locations for the year. Based on their quarterly reports thus
far, they are well on their way to accomplishing both.

Addition of a second distribution center
As of February 2016, operations have commenced in Caseys second distribution
center, located in Terre Haute, Indiana. This project now makes certain that most
proposed and all active stores are within a 500-mile radius of one of the distribution
centers, what the company sees as the optimum efficiency range. With this addition,
operating costs can be expected to decrease over several years, even with an
increased store count.

Lower fuel prices
As CASY states time and time again in its annual report, demand for fuel is what
drives the demand for the rest of their product offering. While fuel is a majority of
the companys revenues, products sold within the store hold much larger profit
margins and a much larger share of the companys bottom-line profits. While it is far
beyond me where exactly oil prices will rest a year from now, two years from now,
or even in a week, current prices sit at relative low points, which has led many more
consumers to find it affordable to drive on a full-time basis, which then bolsters the
sale of gasoline and thus the sale of Grocery and Prepared Foods, in Caseys instance.

Meeting of paced-out goals
Despite rapid growth and improvement in most categories, Caseys management
does not set next-year goals based on past performance, but rather based on
requirements for steady and consistent growth. For example, while Grocery and
Prepared Foods experienced same-store growth of 7.8% and 12.4%, respectively,
management has set the goals for the following fiscal year of 6.2% and 10.4%. While
neither of these goals is greater than the results posted in the past year, they are still
a gradual increase from the goals in the same category from a year ago. This patient
expectation of growth has put Caseys in a position to meet almost all of their
growth goals with ease for the foreseeable future.

EPS per-share growth
From 2014 to 2015, EPS grew 41.2% from $3.30 to $4.66. Based on the quarterly
reports, CASY looks likely to grow this figure by a significant amount again in 2016.

Catalyst
As long as Caseys General Store continues to fulfill their goals for each division,
expand at a profitable rate, and hold their margins on in-store items, an impressive
return to shareholders in the form of dividends and capital gains will come in due
time.