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Bear of the Day: Casey's General Stores (CASY)

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Casey's General Stores, Inc. (CASY) is going through a rough patch as small town America is eating out less. This Zacks Rank #5 (Strong Sell) has missed four quarters in a row.

Casey's owns over 1,900 convenience stores in 14 Midwestern states. It offers self-service gasoline, groceries and prepared foods, including its famous made-from-scratch pizza and donuts, chicken tenders and sandwiches.

It is focused on small town America, with 57% of its stores located in areas with populations under 5,000 people.

This combination means it is the 5th largest pizza chain in the United States as it operates in cities that don't have a lot of other chain restaurant businesses.

Casey's Missed Again

On March 6, Casey's reported its fiscal third quarter earnings and missed for the fourth time. It reported earnings of just $0.58 compared to the Zacks Consensus Estimate of $0.88.

Casey's described "pressures" in its operating area throughout the quarter.

The Fuel segment was fine with same-store gallons sold up 2.6%, higher than its fiscal 2017 goal of 2%. Year-to-date, same-store gallons were up 3% with an average margin of 18.7 cents per gallon, both above the company's goals.

The Grocery segment saw same-store sales up 3%, well under the annual goal of 6.2%. This category is falling behind on its yearly goals, as the 9-month average is just 3.5%.

In the important Prepared Food and Fountain Drinks segment, which includes its pizza business, same store sales were up just 5.8%, well under the fiscal goal of an increase of 10.2%. However, same-store sales did accelerate from the second quarter.

The company recently launched a mobile ordering app and the total app downloads have surpassed 700,000. 13% of whole pizzas sold now come from digital orders.

Fiscal 2017 and 2018 Estimates Cut

With one quarter to go in the fiscal year, it looks pretty obvious that the company isn't going to meet its fiscal 2017 goals in a number of categories. The big third quarter earnings miss also meant that analysts had to cut their full year guidance.

Casey's is located in many small, rural towns. While this has been its strength, as it has less competition there, with farming incomes on the decline the last few years, this has also become a weakness.

As long as the rural consumer, including the farmer, is spending less, that will impact Casey's.

5 estimates were cut for fiscal 2017 and 5 were cut for fiscal 2018 since the earnings report.

The 2017 Zacks Consensus Estimate has fallen to $4.77 from $5.16 before the report. That's an earnings decline of 16.8% versus fiscal 2016 when it made $5.73.

New Share Repurchase Plan

Casey's already pays a dividend, currently yielding 0.9%.

But the Board increased its shareholder friendliness by authorizing a new $300 million share repurchase program for the next 2 years.

Shares are well off their recent highs, so the company must see some value in buying back shares.

Casey's used to trade with a forward P/E of around 30 before the stock sell off. It now trades at 22x. That's still not "cheap" but it's cheaper than in prior years.

Casey's will continue to roll out its online ordering app and it intends to bring delivery of pizza and other grocery items to consumers as well. Will that pay off in future quarters?

The pizza wars are seemingly just beginning to heat up.

If you really want to own the pizza chains right now, you might want to consider one of its top competitors. Domino's (DPZ) is a Zacks Rank #3 (Hold). It's expected to grow earnings by 20% this year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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