ANKENY, Iowa -- Steady cash flow and double-digit sales increases will balance out the new debt that rural powerhouse Casey's General Stores Inc. has taken on as part of its increasingly aggressive acquisition plan, according to financial analysts.
Despite having also taken a hit on gasoline sales in its first fiscal quarter, the Ankeny, Iowa-based Casey's will continue to post strong growth figures, as long as the 1,400-plus store chain doesn't make a dud of an acquisition, Ryan Fuhrmann, an Indianapolis-based analyst with The Motley Fool, Alexandria, [image-nocss] Va., told CSP Daily News. At Motley Fool, we tend to look long term. [To read more about Casey's slow-but-steady development of key competitive advantages, watch for the October issue of CSP magazine.]
Casey's purchased 33 HandiMart stores from Cedar Rapids, Iowa-based Nordstrom Oil this past summer, and in recent months has built three new stores and purchased another six. As a result, the company is issuing $100 million in new debt, doubling its current long-term amount, Fuhrmann said. The new debt is a little higher than normal, but not too high, he said. Once they do an acquisition, they usually pay that down. Of course that depends on if they don't take on too much more and are able to integrate HandiMart.
Another analyst, Adam Sindler of Morgan Keegan Inc., Memphis, Tenn., characterized Casey's as having a conservative management team, that wouldn't move forward without all the pieces in place. One of those integral pieces was a strong technology infrastructure of scanning, pricebook and inventory applications.
Now with these systems in place, [Casey's] can analyze transactions deeply, Sindler told CSP Daily News. Second, they now have the ability to improve operations at those acquired locations.
Casey's has had what Fuhrmann calls a good track record, having grown sales in the double digits over the last five years and operating with a strong cash flow. When analyzing a company, Fuhrmann said he follows the cash in terms of reported net income.
Unfortunately, even stable companies have storms to weather. In its first fiscal quarter, which ended this past July, Casey's reported that weak gasoline sales caused diluted earnings to fall about 22%, missing analyst consensus projections and sending the stock down more than 6% for the day that the news hit Wall Street.On a more positive note, total sales jumped 28% and growth was positive in the company's three key areas of gasoline, prepared foodand fountain, and grocery and other.
The company's growth is due in no small part to its rural game plan a distinct competitive advantage, according to both Fuhrmann and Sindler. Casey's tends to be more rural, Fuhrmann said. They're in smaller towns where there isn't as much competition from 7-Eleven or Wal-Mart. That's a competitive advantage.
Fuhrmann believes that if the company continues to manage its growth well, it has a future full of opportunity. They're only in nine states, he said. They'll have plenty of acquisition opportunities out there. There's room to expand.
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