Casey’s General Stores, a ubiquitous sight across the American Midwest and parts of the East, occupies a unique position in the retail landscape. It’s more than just a gas station or a convenience store; it’s a hybrid, blending elements of both with a dash of general store charm. Operating thousands of locations, primarily in small towns and rural communities, Casey’s has carved out a niche for itself, often becoming the de facto hub of local commerce and social interaction. This strategy has allowed them to establish a strong local presence, often bordering on a localized monopoly, further solidified by their emphasis on high service levels and community engagement.
Casey’s journey has been one of consistent growth, fueled by strategic expansion, inflationary pressures, and organic growth initiatives. This growth has propelled them to become a formidable player in the convenience store industry, competing with national giants like Speedway, 7-Eleven, and Couche-Tard. Today, Casey’s boasts nearly 2,700 locations spanning approximately 20 mid-central states, claiming the title of the third-largest convenience store chain and the fifth-largest pizza chain in the United States. This impressive footprint is managed by a dedicated workforce of around 47,000 team members who handle billions of transactions annually, characterized by relatively small individual purchases. The foundation of Casey’s long-term success rests on several key pillars: their strategically placed stores, their focus on prepared foods (most notably their popular pizza), their investment in advanced technology, and a degree of vertical integration.
A Period of Remarkable Growth and Expansion
The summer of 2023 saw Casey’s shares trading around $250, following the release of their fiscal 2023 results. That year, the company reported revenues of $15.1 billion, operating earnings of $588 million (a margin of nearly 4%), and net earnings of $447 million, translating to approximately $12 per share. With net debt at a manageable $1.3 billion and EBITDA approaching the $1 billion mark, the company appeared financially sound. However, even with these solid results and a price-to-earnings multiple in the low twenties, concerns about potential margin compression loomed, creating a sense of cautious optimism.
What followed over the next 20 months was a period of remarkable growth, with Casey’s shares surging to over $430, a staggering 75% increase. This impressive run began with a resilient performance in fiscal year 2024. Despite a slight dip in full-year sales to $14.9 billion due to lower fuel prices, operating profits actually increased by 12% to $656 million, with net earnings reaching $502 million and earnings per share climbing to nearly $13.50. Casey’s outlook for 2025 was bullish, anticipating further growth driven by potential fuel price recovery, same-store sales growth between 3-5%, and an 8% increase in EBITDA, even with relatively flat fuel volumes. Net debt increased slightly to $1.43 billion, easily manageable given the growing EBITDA of $1.06 billion.
The CEFCO Acquisition: A Game Changer
A pivotal moment in Casey’s recent history was the announcement in July of the acquisition of Fikes Wholesale, the owner of CEFCO Convenience Stores. This landmark transaction, valued at $1.14 billion in cash (effectively reduced to just under $1 billion after tax benefits), brought 198 new stores into the Casey’s fold. These stores, averaging nearly 5,000 square feet, significantly expanded Casey’s presence, particularly in Texas, where three-quarters of the acquired stores are located. The acquisition price represented an 11 times EBITDA multiple based on the estimated $89 million in EBITDA generated by CEFCO. Casey’s anticipated an additional $45 million in EBITDA through synergies, largely driven by the installation of their signature kitchen equipment.
At the time of the announcement, Casey’s commanded a $16 billion valuation, implying a 15 times EBITDA multiple. The CEFCO acquisition, with its 11 times pre-synergy EBITDA multiple (and a projected 7 times multiple post-synergy realization), appeared strategically compelling. Pro forma net debt was projected to rise to $2.57 billion, but with pro forma EBITDA approaching $1.2 billion, leverage ratios remained healthy, hovering in the low 2s. Furthermore, the realization of synergies promised to boost pro forma EBITDA by more than 10%.
Continued Momentum and Rising Expectations
Casey’s momentum continued into the beginning of fiscal year 2025, with strong first-quarter results. By early November, the Fikes acquisition was finalized, marking the largest deal in the company’s history. The first half of the year saw revenues increase marginally to $8.0 billion, but operating profits surged by 11% to $477 million, with diluted earnings per share reaching $9.68. Net debt, excluding restricted cash, stood at $2.35 billion at the end of the quarter, just prior to the closing of the Fikes deal.
Modeling the full impact of the CEFCO acquisition remains a complex task, but it’s reasonable to expect earnings per share to approach $15, excluding the contribution from Fikes, which could potentially add another dollar or two. If a price-to-earnings multiple of 16-17 is applied, shares are currently trading at a 25-27 times multiple, with leverage around 2 times.
A Cautious Outlook
As Casey’s has grown, so have expectations. Margins, valuation multiples, and leverage have all increased, with operating margins approaching 6% in the first half of the year, representing a half-point increase year-over-year. This combination of factors – higher margins, higher valuations, and higher leverage – warrants a degree of caution. While concerns about the long-term healthiness of the food offered and the reliance on fuel volumes in the face of increasing electrification are valid, the strength and diversification of Casey’s business model seem to outweigh these risks for the time being.
However, the current valuation, coupled with the increased leverage and rising expectations, makes the risk-reward profile less compelling. While Casey’s strong market position, opportunistic M&A strategy, and tuck-in acquisitions are positive factors, the current share price appears to reflect much of this potential upside. Therefore, despite Casey’s impressive track record and strategic initiatives, a cautious stance seems prudent at this juncture. The current risk-reward equation does not present a compelling case for investment, and remaining on the sidelines appears to be the most sensible approach.