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Casey's Up 22% in 3 Months, Value Creation Plan on Track

Zacks Equity Research

Casey's General Stores, Inc. CASY appears to be a solid bet, given its efforts to remain on growth trajectory. We note that the company is on track with its Value Creation Plan. This includes new fleet card program, price and product optimization, cost containment efforts, capital reallocation plan as well as digital engagements comprising mobile app and online ordering capabilities.

All these factors helped the company to deliver robust fourth-quarter fiscal 2019 results, wherein both the top line and the bottom line surpassed the Zacks Consensus Estimate and improved year over year. Markedly, the stock has gained approximately 16% since the announcement of its quarterly results on Jul 10. (Read: Casey's Stock Surges on Q4 Earnings & Revenue Beat)

In the past three months, shares of this Ankeny, IA-based company have rallied approximately 22%, outperforming the industry’s growth of around 20%.

Further, analysts are steadily growing bullish on the stock. This is apparent from the rise in earnings estimates. The Zacks Consensus Estimate for fiscal 2020 and 2021 has moved north by 38 cents and 42 cents to $5.82 and $6.19, respectively, in the past 30 days.

All said, let’s take a closer look at the aspects driving this Zacks Rank #1 (Strong Buy) stock, which flaunts a VGM score of A and has an expected long-term earnings growth rate of 9.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

A brief glance at valuation metrics seems to indicate that Casey's has enough room to run in bourses. Further, a Value Score of B also indicates the same. The stock looks attractive with respect to a forward price-to-earnings (P/E) multiple of 26.3x versus industry’s 27.37x. A more-or-less similar picture emerges when comparing EV/EBITDA ratios. Casey's holds the edge here with an EV/EBITDA ratio of 12.33, lower than 15.39 for the industry.

Factors Narrating Casey's Growth Story

Casey's remains on track with its value creation plan to improve sales and profitability. Also, management is focusing on improving distribution efficiency. Casey’s cost-reduction initiatives are likely to result in savings of approximately $200 million in store-level operating expenditures by fiscal 2021.

The company launched the new Caseys.com e-commerce website, initiated fuel price optimization platform across all outlets and will soon launch enhanced mobile app. At the end of fiscal 2019, the new fleet card program has more than 2,000 active cards and 500 new accounts.

Additionally, Casey’s fleet card program, which involves managing and monitoring of initial sales, back-end system processing, billing and other consumer-oriented services, is likely to lift fuel sales. The company’s digitalization efforts will help create a seamless shopping experience online as well as in-store and facilitate same-store sales growth.

We expect all aforementioned factors to continue bolstering the company’s performance, and help it remain in investors’ good books.

Other Key Picks

Target Corporation TGT has a long-term earnings growth rate of 7.1% and a Zacks Rank #2 (Buy).

Companhia Brasileira de Distribuicao CBD has a long-term earnings growth rate of 14.8% and a Zacks Rank #2.

Walmart Inc. WMT delivered average positive earnings surprise of 7.3% in the trailing four quarters. It has a long-term earnings growth rate of 4.7% and a Zacks Rank #2.

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