Reversal of Fortune

After hedge fund-induced dip, Pantry shares jump on better gas margins

SANFORD, N.C. -- Shares of regional convenience retailer The Pantry Inc. soared Wednesday after a Lehman Brothers analyst increased her third-quarter and 2008 profit estimates due to better-than-expected gasoline margins. Shares jumped $1.51, or 16%, to $10.91 in afternoon trading, said the Associated Press. The uptick follows a dip precipitated by a hedge fund that was trying to sell more than 300,000 shares of Pantry stock.

Analyst Karen Howland boosted her fiscal third-quarter profit estimate to 24 cents per share from 16 cents per share and her 2008 estimate to 48 cents per share [image-nocss] from 40 cents per share.

In a note to investors, Howland said she now expects gasoline margins to be 11 cents per gallon. Previously, she had expected a 10.5-cents-per-gallon margin.

Howland said Pantry's earnings are "very sensitive" to gasoline margins and that every penny in the margin adds about 14 cents per share to profit.

The analyst said margins have benefited from cheaper ethanol prices. Ethanol was 22 cents cheaper than clean gasoline in the quarter, making selling ethanol more attractive. Pantry sells ethanol in almost 60% of its stations, according to the report.Separately, Friedman, Billings, Ramsey & Co. has upgraded The Pantry to outperform from market perform on the retailer's gasoline margins.
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Headquartered in Sanford, N.C., The Pantry had revenues for fiscal 2007 of approximately $6.9 billion. As of June 16, 2008, it operated 1,660 stores in 11 states under select banners, including Kangaroo Express, its primary operating banner.