CARY, N.C. -- After more than two months of rabid media coverage of Alimentation Couche-Tard's unsolicited bid to purchase Casey's General Stores, stock analysts are turning their attention to other prominent publicly traded convenience chains.
"It doesn't seem logical that convenience stores would do well during tough economic times. After all, relative to prices at grocery stores, convenience stores aren't cheap," begins an analysis in Forbes Investopedia.com; however, it continues, "convenience stores are solid generators of cash flow."
About the Casey's takeover [image-nocss] bid, Investopedia noted, "It's not hard to figure out why Casey's is being pursued. Its fiscal 2010 EPS for the year ended April 30, 2010, was $2.30, a 36% lift from fiscal 2009. And while gasoline sales provide a stable stream of revenuealbeit at thin marginsgrocery and merchandise margins were more than 30%, while prepared-food margins were nearly 65%. Same store sales across both categories were also up."
(Click here for previous CSP Daily News coverage of the Couche-Tard/Casey's saga.)
What about other public c-store chains? If Casey's success makes it a valid takeover target, are other companies also in line?
In this debate, two chains in particular have caught analysts attention: The Pantry and Susser Holdings, two companies with strong regional portfolios. While neither one is currently rumored to be the subject of an acquisition, analysts are playing the speculation game to assess their merits and challenges.
The Pantry trades for 1.1 times its book value vs. 2.2 for Casey's, according to Investopedia. "Casey's deserves to trade at a premium," according to the Web site, "due the strong profitability of its stores and its strong balance sheet. Casey's has virtually no net debt, while The Pantry is heavily leveraged. Nevertheless, the company looks like an attractive turnaround play."
Based in Cary, N.C., The Pantry Inc. is a leading independently operated c-store chain in the southeastern United States and one of the largest independently operated c-store chains in the country. The company operates more than 1,650 stores in 11 states.
When contacted by CSP Daily News for this story, The Pantry CEO offered no comment.
Corpus Christi, Texas-based Susser Holdings, meanwhile, is an even smaller c-store chain with 525 stores in Texas, Oklahoma and Louisiana. It trades at 0.8 times its book value, Investopedia stated, but has nearly $300 million in net debt against a market cap of $180 million.
The Pantry "has had strong growth and has a big footprint across the Southeast," according to a separate recent article in Barron's.The stock has potential upside, partly because it could be an attractive target for an acquirer in an industry that is likely to see lots of deals over the coming years, the publication said. "It's one of the retail sectors that hasn't consolidated, relative to others that we cover," said Mark Miller, an analyst at William Blair & Co. who rates The Pantry "outperform."
An analysis by The Motley Fool, however, said being "an attractive target for an acquirer" does not necessarily make for an attractive stock. Instead, the analyst said he was most drawn to the fact The Pantry "has a relatively new management team that is making changes."
Others agreed.
Barron's noted that new CEO Terry Marks, a former top executive at Coca-Cola Enterprises (CCE) who joined the company in September after Peter Sodini retired, is "focusing on improving the company's operations, from serving better coffee and sandwiches to pricing its gasoline more efficiently and getting a better handle on customer trends."
(Click here for previous CSP Daily News coverage of Pantry, including reports on Marks and on the retailer's foodservice initiative.)
"The Pantry has the most opportunity to improve performance of the business because they've been under-managed for a long time," Karen Short, an analyst at BMO Capital Markets in New York, told Barron's. Short described Marks as "working to tighten the ship." She has an "outperform" rating on the shares.
The Pantry no doubt will be helped by an improving economy, as people do more driving, and as one key constituency, construction workers, goes back to work, Barron's concluded. The Southeast's average unemployment rate has exceeded the national mark throughout the recession, in part because of a big decline in home building.
Summarized Investopedia: "With stable businesses backed by fuel, cigarette and food sales, convenience stores offer the kind of stable cash flows that many investors or potential acquirers seek. With the recent interest in Casey's General Stores, shares in The Pantry may be the next best thing."
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