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Should You Invest in Casey's Stock Despite Its Premium Valuation?
CASYCasey’s(CASY) ZACKS·2025-01-07 19:31

Valuation and Stock Performance - Casey's General Stores, Inc. (CASY) is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 26.09X, which is a premium compared to the industry average of 22.68X and the S&P 500's average of 22.23X, indicating that the stock is overvalued [1] - Over the past month, shares of CASY have lost 5.1%, while the industry and S&P 500 declined by 5.3% and 0.8%, respectively [3] - Closing at 396.76,sharesaretradingbelowthe50−daysimplemovingaverageof396.76, shares are trading below the 50-day simple moving average of 409.10, raising concerns about the stock's short-term outlook [4] Operating Expenses and Profitability Challenges - Casey's is facing rising operating expenses, which increased by 5.2% year-over-year to 609.7millioninthesecondquarteroffiscal2025,primarilyduetotheoperationof93additionalstores[6]−Thetrendofrisingoperatingexpenseshasbeenconsistentoverthepasttwoquarters,withincreasesof8.7609.7 million in the second quarter of fiscal 2025, primarily due to the operation of 93 additional stores [6] - The trend of rising operating expenses has been consistent over the past two quarters, with increases of 8.7% and 11% respectively, which could pressure profit margins [7] - The acquisition of Fikes is expected to significantly increase operating expenses, with one-time integration costs projected between 15-20millioninthethirdquarterandtotaloperatingexpensesexpectedtogrowby11−1320 million in the third quarter and total operating expenses expected to grow by 11-13% for fiscal 2025 [8] Sales Performance and Growth Initiatives - Casey's reported a 0.6% decline in same-store fuel gallons sold for the fiscal second quarter, with a contraction in fuel margin to 40.2 cents per gallon from 42.3 cents the previous year [10] - The prepared food and dispensed beverage segment, crucial for profitability, saw a gross margin decline of 30 basis points year-over-year to 58.7%, driven by rising input costs [11] - Inside sales grew by 9% year-over-year to 1.47 billion, supported by strong performance in prepared foods and beverages [17] Future Outlook and Strategic Plans - Casey's has reaffirmed its full-year guidance for fiscal 2025, expecting inside same-store sales growth of 3% to 5% and at least a 10% increase in EBITDA [18] - The company plans to open approximately 270 new stores during the fiscal year to drive continued revenue growth [18] - Casey's maintains a strong liquidity position with 1.25billionasofOctober31,2024,andgenerated1.25 billion as of October 31, 2024, and generated 160 million in free cash flow for the fiscal quarter, up from $145.6 million year-over-year [19]