Casey’s General Stores: A Dollar General Approach to Gas Stations $casy – Two Natural Capital
Casey's General Stores expansion strategy challenges rural market dominance, with aggressive acquisitions, pizza market growth, and potential competitive risks in emerging markets, analyzing stock performance and EV impact.
Casey's aggressive expansion through acquisitions may dilute its rural competitive advantage as it faces increased competition from established pizza chains in higher-traffic markets.
Stock info:
- Ticker: CASY (NASDAQ)
- Position: Two Natural Capital does not disclose a specific position (long or short) in this research report
Why it matters:
- Casey's has successfully leveraged high-margin food offerings (particularly pizza) to offset low-margin gas and tobacco sales, becoming the fifth-largest pizza chain in the U.S.
- Under CEO Darren Rebelez (since 2019), Casey's has accelerated store growth through acquisitions, with the record-breaking Fikes Wholesale purchase adding 198 stores.
- The company's shift from extremely rural locations (under 5,000 population) to areas with up to 20,000 people signals a potential "style drift" that could erode its competitive advantage.
- Cost-cutting measures, including reduced employee hours and elimination of in-store donut-making equipment, risk degrading the quality that differentiates Casey's food offerings.
- While currently trading at 32x earnings, Casey's faces increasing competitive pressure as it enters markets where established pizza chains operate.
By the numbers:
- Casey's has operated pizza kitchens since 1984, with food strategy mentioned in annual reports dating back to 1980 and 1994.
- 72% of Casey's stores are located in towns with fewer than 20,000 people, providing relative insulation from major competitors.
- The company prices its pizzas $1-2 below national chains in competitive markets to maintain an advantage.
- Casey's paid 11x pro forma adjusted EBITDA for the CEFCO acquisition, maintaining a reasonable 2x debt-to-EBITDA ratio.
- Despite concerns about electric vehicle adoption, Casey's rural footprint provides near-term insulation, though long-term impacts remain uncertain.
- Casey's has compounded EPS at approximately 19% annually over the past five years, supporting its premium valuation.
FAQs:
What is Casey's General Stores' primary business model?
Casey's operates gas stations primarily in rural areas, differentiating itself through high-margin food offerings, particularly freshly made pizza. This strategy helps offset the traditionally low margins of gas and tobacco sales.
How has Casey's expanded its store footprint recently?
In fiscal 2024, Casey's added 154 stores, with approximately 70% coming through acquisitions. The company's largest acquisition was Fikes Wholesale (operating CEFCO stores), which added 198 locations, with 148 in Texas.
What risks does Casey's face in its expansion strategy?
As Casey's moves into more populated areas, it faces increased competition from established pizza chains like Domino's and Papa John's. This expansion may dilute the competitive advantage it enjoys in truly rural markets where food options are limited.
How might electric vehicles impact Casey's business?
While Casey's rural footprint provides near-term insulation from EV adoption trends, the long-term impact on gas station business models remains uncertain. Casey's has begun installing EV charging stations to adapt to this potential challenge.
What operational changes has Casey's implemented recently?
Under CEO Darren Rebelez, Casey's has focused on operational efficiency, including reducing employee hours and eliminating in-store donut-making equipment in new stores. These cost-cutting measures raise concerns about potential impacts on food quality and customer experience.
Is Casey's stock considered overvalued?
Trading at approximately 32x earnings, Casey's carries a premium valuation. However, the company has compounded earnings per share at roughly 19% annually over the past five years and maintains significant room for geographical expansion, potentially justifying the multiple.
Disclaimer
This summary is based on a report by Two Natural Capital. For the full, detailed analysis, please refer to the original source material: https://www.twonaturalcap.com/p/caseys-general-stores-a-dollar-general
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