Casey's General Stores (CASY)

November 7, 2019

COMPANY DESCRIPTION

Casey’s General Stores (CASY) operates convenience stores in 16 Midwestern states, mostly in
Iowa, Missouri and Illinois. Its stores sell gasoline and a wide variety of food, including freshly
prepared donuts, hamburgers and pizza, among others. It also sells beer and a broad selection of
other beverages and non-food goods. Gasoline accounted for 63% of revenue in FY17. Average
retail sales per store were $4.4 million in FY18, up from $4.2 million in FY17.

INVESTMENT THESIS

We expect revenue and earnings to advance solidly over the next two years. In fiscal year 2019
revenue was up 11.5% and we forecast growth of 8% in both FY20 and FY21. Moreover,
earnings improved significantly in FY18 and we project earnings growth of 10% over the next
two years.

RECENT DEVELOPMENTS

On September 10, the company reported 22% higher earnings. First-quarter fiscal-year 2020
earnings rose to $2.31 from $1.90 in the prior year period; well above the consensus estimate of
$2.01 per share. CASY’s price-optimization strategy led to higher-than-expected fuel margins
and a 15% increase in adjusted EBITDA growth. This despite unfavorable weather, which led to
lower-than-anticipated miles driven in the Midwest, reducing customer traffic.

Turning to the top line, revenue increased to $2.63 billion from $2.59 billion, above the
consensus estimate of $2.61 billion.

On June 23, Casey’s appointed a new CEO after former CEO and president Terry Handley
retired. He has been replaced by Darren Rebelez, a veteran of the convenience store and
restaurant industries. Mr. Rebelez had served as head of IHOP.
EARNINGS & GROWTH ANALYSIS

We think management’s efforts to optimize prices and further improve margins will result in
10% earnings growth over the next two fiscal years. We increase our prior estimates based on
management’s guidance as we see more benefit from management’s price optimization
initiatives.

CASY plans to focus on organic growth. The company’s capital expenditure budget for fiscal-
year 2020 is $516 million and includes 60 additional stores. In FY19, capital expenditures were
$482 million, primarily reflecting a new distribution center and an addition to corporate
headquarters. With debt of 2.4 times EBITDA, management said the company was unlikely to
repurchase shares.

For FY20 and FY21, our estimates are $5.90 and $6.30 respectively.

RISKS

Risks include a global economic slowdown, rising wages and an inability to pass on higher fuel
prices.

VALUATION

Our price target is based on a sum-of-the parts approach.  We use an 8-times the next twelve
months EBITDA multiple, for the fuel and merchandise business, similar to peers, while we use
a 15 times EBITDA multiple for the prepared foods business, a discount to peers. Based on this
approach, we value the shares at $205. At it current price, our target, if achieved, offers investors
the prospect of an approximately 19% return, including its dividend.

Casey's Genral Stores (CASY)

Current Price: $172.88

Target Price: $205

Current Valuation: 29.3 times FY20 EPS

Target Valuation: 34.7 times FY20 EPS