Convenient Value: Casey’s General Stores (CASY)
The Pandemic turns overlooked convenience stores into long-term survivors.
Photo by Chor Tsang on Unsplash
The local grocery store married to a fast-food node, gas pump and Lotto stand has become an unlikely all-world pandemic success story. And if there’s a single grab-and-go must-have stock in a world of reduced travel and limited face-to-face contact, it is Akeny, Iowa-based convenience store operator Casey’s General Stores.
Deep-dive, sophisticated analysis is not needed to understand why convenience stores are survivors in the age of no-cure pandemics. Customers travel to stores for at most a few minutes, usually in a quarantine-compliant vehicle, knowing what they need. They tend to find it in uncrowded shopping aisles. Quickie consumables like beverages, gas, and milk are also at hand. There’s no pressure to comparison-Web shop at an Amazon or Walmart. The food found at the successful convenience store can be pretty darn good. Mid Atlantic-based Royal Farms’ fried chicken is particularly crispy. And East Coast staple WaWa’s low-cost quality sandwiches are as good as those we’ve had at pricey Parisian Pret-a-Manger joints.
Convenience stores are also regulation-protected real-world touch points for state-sanctioned Lotto tickets. Most states flatly prohibit online sale of lotteries. When the coronavirus drove Lotto sales in states like Arizona, Maryland, and Texas to record levels, traffic in convenience stores boomed, as well.
Even more intriguing, convenience stores are among the most well-documented retail categories we’ve studied. Organizations like the Association for Convenience and Fuel Retailing provide excellent data sets: The story in the numbers is clear: Of the 152,720 total convenience stores in the U.S., of which roughly 62 percent are single-store operations, Casey’s General Store is without question the stand-out investor pick.
Wholesome businesses like Casey’s get rarer every day.
From 0 to 2,300.
Casey’s started all the way back in 1959 in Des Moines, Iowa, as a single-store operation. Legend has it that founder Don Lamberti then got tired of getting gouged for gas. So he bought out a local oil company. And Casey’s was off to the races of selling gas, beer, and coffee to America’s suddenly-mobile Midwestern population. Since then, Casey’s has told a singular 60-plus-year growth story that has led to more than 2,000 locations in 16 states, with more than half serving towns with populations of 5,000 or less.
That’s an average of 33 stores opening per year for 6 decades!
Casey’s is also vertically integrated. It owns distribution centers that wholesale roughly 90% of its in-store products and 75% of its fuel. This operation competes perfectly well with logistics giants like Walmart and ExxonMobile. But unlike either of those companies, Casey’s carries almost no capitalized leases. This is a business that essentially owns all its properties and then simply pays interest expense on low-cost bank loans.
The company is also perfectly comfortable online. It supports a simple, but effective web presence with menus, coupons, and rewards programs. One can both apply for a job and buy a Casey’s. Looking for a lot that could make a great location? Click right here and make an offer. Many sophisticated real estate investment trusts aren’t this well organized.
All that has given Casey’s the muscle to grow, even during the worst of times, like these. The operation just laid down a cool $580 million in cash to purchase rival Buchanan Energy and its group of Bucky’s Convenience Stores.
Photo by Cassidy James Blaede on Unsplash
Certainly, the value comes with a cost: Casey’s stock is a favorite among retail, fast food, and supermarket investors. The operation’s stock is trading at an all-time high. And certainly, 23 times forward earnings is a lot to pay for retailer stock. But to us, that misses the story. To unlock the value here, take the time to visit a store, grab a discount coupon and get darn good $5.99 pizza. Then take your pie, cozy up to some of the surprisingly comfy in-store seating, and take in the fabric of local society that Casey’s exudes.
For those in rural areas locked down by pandemics, Casey’s isn’t just a place to eat, like McDonald’s, Domino’s and Yum Holdings. It’s more like Starbucks. It’s a gathering place you go to take a break and be a human, if even for just a moment. And Starbucks stock trades at 84 times forward earnings.
Casey’s is telling the rural recovery story of the moment. It’s just that city slickers – and analysts – aren’t listening quite yet.