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Casey's Down More Than 7% in 3 Months: Can the Stock Revive?

Zacks Equity Research

Shares of Casey’s General Stores, Inc. CASY have declined 7.4% in the past three months. In fact, the company’s shares have dropped 12.3% since it reported second-quarter fiscal 2020 results on Dec 9. Notably, the industry has declined 9.8% and 8% in the past month and three months, respectively.

Although this Zacks Rank #3 (Hold) company retained its positive earnings surprise streak in the fiscal second quarter, its top line missed the Zacks Consensus Estimate and fell year over year. Moreover, Casey's trimmed its fiscal 2020 same-store sales projection for fuel, and prepared food & fountain categories. These apart, the company has been witnessing elevated operating expenses for a while now, which is estimated to continue throughout fiscal 2020.

That said, let’s delve deeper into the factors causing a rift.



What’s Hurting the Stock?

Casey’s is grappling with sluggish fuel sales. Notably, fuel sales decreased 6.6% to $1,514.5 million in the second quarter of fiscal 2020. Fuel gallons same-store sales fell 1.8% in the reported quarter, following a 2% decline in the preceding quarter. Prior to this, the metric was down 2.8% and 3.4% in the fourth and third quarters of fiscal 2019.

Management now envisions fiscal 2020 fuel gallons same-store sales between down 1% and up 0.5% as compared to previously mentioned down 0.5% to up 1%.

Further, the company’s operating expenses have been rising for quite some time now. Operating expenses rose 8.5% in the fiscal second quarter, owing to 84 additional stores compared with the prior-year period. Going ahead, operating expenses are envisioned to increase 7-9% in fiscal 2020. Also, high costs are expected to hurt the bottom line to the tune of $6 million or 12 cents per share in fiscal 2020. 

Efforts to Counter Woes

Casey's remains on track with its value creation plan, which includes fleet card program, price and product optimization, loyalty program, digital engagements — comprising mobile app and online ordering capabilities, cost containment efforts, and capital reallocation plan. Such cost-reduction initiatives are likely to result in savings of $200 million in store-level operating expenditure by fiscal 2021.

Further, the company launched the Caseys.com e-commerce website, rolled out mobile app and initiated fuel price optimization platform across all outlets. It will soon launch a loyalty program at the beginning of the coming calendar year.

The company’s fleet card program, which involves managing and monitoring of initial sales, back-end system processing, and billing and other consumer-oriented services, is likely to lift fuel sales. Moreover, the program is anticipated to be accretive to fuel and in-store sales. 

Further, the company is making efforts in the digital space to help create a seamless online as well as in-store shopping experience and facilitate same-store sales growth. Further, the company’s price and product optimization strategy will help augment sales and fuel margin. In this regard, fuel margin for fiscal 2020 is now projected to be 21-23 cents per gallon, up from 20.5-22.5 cents stated previously.

3 Stocks to Watch

Crocs CROX has a long-term earnings growth rate of 15%. It presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boot Barn Holdings BOOT has a long-term earnings growth rate of 17%. The company currently flaunts a Zacks Rank #1.

Target Corporation TGT has a long-term earnings growth rate of 7.6%. It sports a Zacks Rank #1 at present.

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