BMO Capital Remains Sidelined on Casey's General Stores (CASY) Following 4Q
BMO Capital reiterated a Market Perform rating on Casey's General Stores (NASDAQ: CASY), and raised the price target to $118.00 (from $115.00), following the company's 4Q earnings report. The company also provided goals for 2017. BMO dropped F17 EPS estimates to $5.62 (from $5.75) and F18 estimates to $6.55 (from $6.73).
Analyst Kelly Bania commented, "We continue to believe that CASY’s same-store sales outlook remains solid,supported by: 1) the continuation of a robust pipeline for major remodels (in line with F16); 2) +100 each of additional pizza delivery and 24-hour locations (also similar to F16); and 3) a 1% price increase (in May) in the prepared food & fountain category. An up-tick in replacement stores to +35 in F17 supports the non-comp sales outlook. We see incremental expense headwinds in coming years from: 1) the new minimum salary exemption rule (effective 12/2016); 2) EMV shift liability (effective Oct 2017 with potential avg cost of $30-40k/store); and 3) ongoing wage pressure (~75% of y/y increase in y/y Opex dollars in F16). Potential change in lawaround food stamp usage also remains a regulatory risk. A higher opex outlook in F17 (+12.8% y/y) and D&A (+14% y/y) are nearly offset by higher fuel gross profitand slightly higher SSS. We are raising our CPG forecast up to 18.1 (from 17.5prior), which is slightly below CASY’s new F17 goal of 18.4 CPG and assumes an underlying 16.0 ex-RIN CPG (between CASY’s ex-RIN 3-year average of 16.6 and 5-year average of 15.8) and includes a 2.1 CPG benefit from RINs. While broader c-store industry expense headwinds may be offset with higher retail fuel margins, we are lowering our target P/E multiple slightly given the more volatile earnings streamfrom retail fuel margins. Our F17E EPS drops to $5.62 (from $5.75) and F18E EPSshifts to $6.55 (from $6.73). We are raising our TP to $118 (from $115) based on 18x (down from 20x), as we shift our valuation out to F2018E EPS (vs. F17 prior)."
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Shares of Casey's General Stores closed at $119.72 yesterday.