Goldman Sach's Stephen Grambling upgraded Casey's General Stores Inc CASY to from Neutral to Buy, raising the price target from $123.00 to $145.00 — all while adding the company to Goldman's Conviction Buy List.
Rising Biofuel Prices
The analyst believes Casey will benefit from rising RIN (biofuel) prices and is positioned well to take advantage of a "fragmented c-store industry with low borrowing costs and limited financial leverage."
"CASY is a purely domestic, stable compounder poised to benefit from higher RIN prices, ramping in-store initiatives, and lower food costs," stated Grambling.
Working with Goldman's agriculture analyst, Grambling expects rising RIN prices to provide a tailwind for Casey's fuel margin. The analyst noted RINs equate to an 11 percent benefit to his FY17/8 EBITDA estimates.
Healthy Initiatives And Lower Food Costs
The Goldman analyst praised the company's strong initiative in ongoing pizza delivery, mobile ordering momentum and 24-hours in addition to macro movements. These initiatives "should drive accelerating same store sales, which have historically outpaced broader retail by a large degree with less volatility," stated Grambling.Additionally, lower food costs "should be a tailwind for prepared gross margin," said the analyst.
In defiance of these clear catalysts to Casey's General Stores, the company was trading at irrespective multiples. "Despite these positives, shares are trading at 8.5X FY17 EV/EBITDA, in line with history but at a discount to both c-store (9X) and defensive retail peers (11X)," said Grambling.
According to TipRanks, Stephen Grambling is among the highest ranked analyst covering Casey's General Stores, having a success rate of 69 percent with an average rate of return per recommendation of +4.0 percent. The analyst is ranked 771 of 3,980 analysts.
At the time of writing, Casey's General Stores traded at $126.65, up 2.10 percent in Wednesday's pre-market session.
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