On Monday, Evercore ISI updated its financial model for Casey's General Stores (NASDAQ:CASY), leading to an increase in the price target to $435 from $410 while maintaining an Outperform rating. The firm highlighted the expected accretion from a recent deal, projecting an increase in EBITDA and a subsequent rise in leverage to around 2.4x. However, leverage is forecasted to decrease to 2x or less within 12-18 months following the deal's closure.
The analyst noted Casey's General Stores' plans to expand its footprint significantly, aiming to add 500 new stores by the end of fiscal year 2026, exceeding the previous target of over 350 stores. The acquisition's minimal geographic overlap with CEFCO is expected to facilitate regulatory approval by the Federal Trade Commission before the calendar year 2025. Additionally, the company is targeting over $45 million in synergies over the next 3-4 years.
In terms of financial adjustments, the analyst expects early-year accretion to be modest compared to the approximately $90 million EBITDA contribution from CEFCO's underlying business before synergies are realized. Interest expenses are projected to increase by roughly $55 million, and the company is likely to halt share buybacks in fiscal years 2025 and 2026 as it redirects cash flow to reduce its post-deal leverage.
Finally, the report mentions that Casey's General Stores plans to finance the deal with over $1 billion from cash on hand and short-term private placement notes or a revolving credit facility. The company does not anticipate an immediate need for a new distribution center to reach markets like Florida, as it will continue honoring existing distribution agreements with McLane and utilize the Joplin Distribution Center to service Texas.
In other recent news, Casey's General Stores is set to acquire Fikes Wholesale, Inc., owner of CEFCO Convenience Stores, for $1.145 billion, expanding its footprint into the southern states.
This transaction is expected to add 198 retail stores and a dealer network to Casey's operations. In other developments, several analysts have updated their outlooks on Casey's. Evercore ISI increased its price target for Casey's shares from $370 to $405, citing the company's strategic focus on quality prepared meals.
Goldman Sachs also lifted its price target for Casey's shares to $335, acknowledging the company's strong fourth-quarter performance. Similarly, Benchmark raised its price target to $410, following a significant rise in Casey's earnings per share. Lastly, Wells Fargo increased its price target for Casey's shares to $415, recognizing the company's robust fourth-quarter performance.
InvestingPro Insights
As Casey's General Stores (NASDAQ:CASY) strategizes for expansion and synergies following its latest acquisition, investors are closely monitoring its financial health and stock performance. Notably, Casey's has a strong track record of raising its dividend, having done so for 24 consecutive years, signaling a commitment to shareholder returns. Additionally, the company has maintained dividend payments for 35 consecutive years, underscoring its financial stability and consistent performance.
From a valuation standpoint, Casey's is trading at a P/E ratio of 29.05, which suggests a premium relative to its near-term earnings growth. This is further supported by a PEG ratio of 2.27, indicating that the stock may be priced on the higher side when factoring in growth expectations. Nevertheless, the company's operational metrics remain robust, with a gross profit margin of 22.53% over the last twelve months as of Q4 2024.
Investors should be aware of the potential for stock price volatility, as the Relative Strength Index (RSI) indicates that Casey's stock might currently be in overbought territory. Despite this, the company has experienced a high return over the past year, with a 56.52% price total return, and is trading near its 52-week high at 97.53% of the peak price. For those interested in further analysis and additional InvestingPro Tips, consider exploring the insights available at https://www.investing.com/pro/CASY. Plus, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, where you can find many more tips to guide your investment decisions.
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