Casey's General Stores Analysts Talk Free Cash Flow, Acquisition Potential After Q2 Beat

Casey’s General Stores Inc CASY shares are soaring following a a big second-quarter earnings beat Monday.

The convenience store chain reported Q2 earnings of $1.80 per share, beating estimates by 24 cents. Sales slightly missed estimates by $2 million, coming in at $2.538 billion.

The Sell-Side Reacts

Sidoti analyst Anthony Lebiedzinski maintained a Neutral rating with a $130 price target following the quarterly print. 

“As we see it, Casey’s maintains a good balance sheet, with debt at 49 percent of capital at the end of Q2. We also think CASY will resume generating positive free cash flow in 2019 and expect approximately $4 per share of free cash flow each year in 2019 and F2020,” the analyst said.

Gabelli Securities analyst Damian Witkowski said Casey’s is the firm's best idea for 2019, reiterating a Buy rating on the company and raising the full-year EPS outlook from $4.30 to $4.50 on the basis of better-than-expected Q2 results and a favorable fuel margin environment.

“We believe CASY remains the most attractive  publicly traded, acquisition target in the consolidating convenience store industry,” the analyst said. 

As the fourth-largest convenience store operator in the U.S., Casey’s would not only provide a potential buyer with scale, but a small town focus, real estate ownership self-distribution capabilities and a competitive moat alongside an opportunity for organic growth, Witkowski said. 

“We have seen large deals consummated in this space over the last five years as scale becomes more important in this mature and highly fragmented industry."

Alimentation Couche-Tard Inc ANCUF and SEVEN & I HOLDI/ADR SVNDY, the owner of 7-Eleven, are expected to remain active consolidators in the convenience store space, according to Gabelli. Marathon Petroleum Corp MPC’s Speedway banner and EG Group, which acquired Kroger Co KR’s convenience stores earlier in the year, are other potential consolidators, the firm said. 

Price Action

Casey’s General Stores shares were trading up 1.51 percent to $131.42 after the open Wednesday.

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