On paper, convenience store and gasoline station operator Casey’s General (NASDAQ:CASY) – which carries a “Moderate Buy” assessment among top-ranked analysts – appears a relevant business enterprise. However, its latest earnings report presents one glaring problem that investors should consider before taking up a hefty position. Therefore, I am neutral on CASY stock.
Earnings Report Presents Rough Picture for CASY Stock
As TipRanks reporter Sheryl Sheth pointed out, CASY stock suffered a steep 4.5% drop in extended trading on June 6 following the underlying company’s weak results for its fiscal fourth quarter of 2023. “The American convenience chain store operator posted diluted earnings of $1.49 per share, lower than the analyst consensus of $1.64 per share, and also below the prior-year number of $1.60 per share,” wrote Sheth.
In addition, revenue of $3.33 billion dipped 3.7% on a year-over-year basis. As well, the latest tally came in lower than Wall Street’s consensus target of $3.38 billion. To be fair, one major positive was that “inside same-store sales grew by 6.5% year-over-year, thanks to the growing demand for both alcoholic and non-alcoholic drinks, as well as pizza and bakery products,” per Sheth’s report.
Notably, total operating expenses expanded by 6.3% against the year-ago quarter. This increase stemmed primarily from operating 69 additional stores compared to the same period one year ago. “In addition, the company successfully added 81 new stores, and its Rewards members grew to 6.4 million at year-end, April 30, 2023,” Sheth remarked.
At the time of Sheth’s reporting, CASY stock benefitted from a Strong Buy consensus rating from analysts. This assessment broke down as six Buys, one Hold, and zero Sells. However, with the inclusion of another Hold rating and the loss of one Buy, CASY now features a Moderate Buy consensus rating.
Diving into the details, the downward adjustment for CASY stock isn’t entirely unjustified.
Fuel Sales Present a Reason for Concern
Looking at the granularity of Casey’s Q4 earnings report, one glaring miss stems from fuel sales. For the three months ended April 30, 2023, fuel sales came out to $2.138 billion (down 8.8% year-over-year). Fuel sales in the year-ago period landed at $2.345 billion.
What’s problematic about this framework primarily centers on the average cost of retail gas prices per gallon. Using data from the U.S. Energy Information Administration, the average cost of gas during Casey’s Fiscal Q4 2022 (February through April) was $5.336. In Q4 2023, the average sat at $4.721. Roughly speaking, that’s about a 12% decline year-over-year.
At the same time, multiple sources indicate that sentiment for revenge travel – or the intense desire to vacation following a collective case of cabin fever – remains robust to this day. However, if we’re looking at Casey’s fuel sales, this sentiment may be fading, at least for road trips.
In all fairness, fuel gallons sold in Q4 2023 clocked in at 635,916, 2.4% above the year-ago tally of 621,118 gallons. However, this seems a modest increase, especially in light of the big revenge travel narrative that mainstream media outlets sell.
Fundamentally, it’s possible that consumer economy headwinds such as stubbornly high inflation and mounting mass layoffs have taken their toll on everyday American households.
Fading Total Sales a Curiosity
Another factor that should give prospective investors of CASY stock pause is the fading revenue framework. In Fiscal Q1 2023 (three months ended July 31, 2023), Casey’s posted $4.45 billion in revenue. However, in the following quarter, sales dipped to $3.98 billion. Then, in Q3 2023, sales dipped to $3.33 billion. As stated earlier, Q4 also came in at $3.33 billion.
Put another way, if revenge travel is such a robust phenomenon, one would expect total sales to stay elevated, if not swing higher. That it’s moving down overall implies that even with lower gas prices, consumers aren’t parlaying the discount with significantly more trips or more food purchases.
To be sure, that’s not to say that revenge travel is dead. However, investors may want to be careful about bidding up this narrative based on the hard evidence above.
Is CASY Stock a Buy, According to Analysts?
Turning to Wall Street, CASY stock has a Moderate Buy consensus rating based on five Buys, two Holds, and zero Sell ratings. The average CASY stock price target is $270.83, implying 24.14% upside potential.
The Takeaway: CASY Stock Offers Food for Thought
If the revenge travel argument represented a holistically bullish framework, by logical deduction, CASY stock should rise on increased demand. As a convenience store and fuel station provider, Casey has its hands on the pulse of the consumer economy. However, what’s beating back implies growing weakness on that front.
