CASEY’S GENERAL STORE: NASDAQ (CASY)

Iowa State University - UndergraduateLincoln Eppard, Stuart Hatlen, Hieu Nguyen, Uyen Tran, and Ryan Schupick

ThesisSell Recommendation

● Currently Overvalued○ High P/E○ Debt/Equity○ Comparables ~ $75.01/share

● Lack of sustainable growth● Financial Positioning● Competition

CASEY’S GENERAL STORE: NASDAQ (CASY)

Business Overview

CASEY’S GENERAL STORE: NASDAQ (CASY)

Prepared Food and Fountain

Fuel •Grocery and Other Merchandise

3 Main Segments

70% Revenue

20% gross profit?

Challenge: Cigarette

Beer & Beverages

Coffee Bar

Pizza Delivery

Sandwiches

Self-control Distribution Network

CASEY’S GENERAL STORE: NASDAQ (CASY)

Stores by Population

Centered on smaller communities

“Aggressive Accounting and Governance Risk”

$4.5M of Donation Last Year

CASEY’S GENERAL STORE: NASDAQ (CASY)

Industry Analysis● Highly Competitive

○ ~5% Gasoline Margin○ Mature market makes

expansion difficult

CASEY’S GENERAL STORE: NASDAQ (CASY)

Financial Analysis● Their increase in EPS was caused by their $500 million(20%) buyback● Revenue growth rate: 24% in 2012 to 8.3% in 2014● Gasoline contributes to 70% of revenue but margins on it are 5-7%● Increasing long term debt pressures companies vision on dividend payout

CASEY’S GENERAL STORE: NASDAQ (CASY)

Upside Potential● Expansion

○ Greater Midwest Expansion(towns of under 5,000)

○ Brand Recognition● Store Renovations

○ Increased Kitchen Space ○ More Cooler Space

● Prepared Food Segment ~ 60% Margin

● ~10% Same Store Sales Growth last 3 years

CASEY’S GENERAL STORE: NASDAQ (CASY)

Bull/Bear Argument Discounted Cash Flow outputs through inputs of bull and

bear conditionsVariables Used● Growth● ROE● Equity Cost● EPS Growth RateBull ~21% downsideBear ~85% downside

CV=Casey’s Value from SEC filingsCASEY’S GENERAL STORE: NASDAQ (CASY)

ValuationsDiscount Cash Flow ModelDividend Discount Model

Relative ValuationAssumptions gathers through● Companies SEC filings: Revenue, Costs, Margins, etc● Professional Company Analysis: EPS, Dividends, etc.● Arbitrary Analysis On Industry Drivers● Bloomberg Terminal Forecasting: ROE, WACC,

Equity CostCASEY’S GENERAL STORE: NASDAQ (CASY)

Downside Risk● Failure to Meet EPS Growth● Low Barrier to Entry● No competitive advantages● Increasing Debt/Equity● Regulation● Cost Growth

○ Commodities○ Credit Card Expense

CASEY’S GENERAL STORE: NASDAQ (CASY)

DCF

Overvalued ~35%WACC relative to Bloomberg Terminal

CASEY’S GENERAL STORE: NASDAQ (CASY)

Sensitivity Analysis

Discount Cash Flow with all else equalOvervalued even in multiple conditions

CASEY’S GENERAL STORE: NASDAQ (CASY)

DDMSlow Revenue

GrowthEPS driven by

Buybackdecreases

Dividends perShare low growth driven by Revenue slowing

Discounted on 5 termsCASEY’S GENERAL STORE: NASDAQ (CASY)

Sensitivity Analysis

Discounted Dividend Model Sensitivity AnalysisEquity CostEPS Growth Rate

Overvalued even in multiple conditions

CASEY’S GENERAL STORE: NASDAQ (CASY)

Relative

Engineered from 2 year forecast on competitors’ EPSIndicative from Industry averagesForecasting lower revenue growth with volatile Oil prices

CASEY’S GENERAL STORE: NASDAQ (CASY)

Investment SummaryDespite the potential in revenue and earnings growth in the coming years through expansion, the downside risk in our analysis far exceeds the upside risk.● Increasing debt ● Decelerating growth● Overvalued

CASEY’S GENERAL STORE: NASDAQ (CASY)