CASY

Casey's ($CASY) Drops 4% Despite 8th Straight Beat, 34x P/E Raises Valuation Concerns

01/06/2026 19:25

Casey's General Stores ($CASY) reported fiscal Q2 2026 results on December 9th with earnings per share of $5.53, beating consensus estimates of $4.92 by 12.4%. This marked the eighth consecutive quarterly earnings beat, accompanied by revenue of $4.51 billion (up 14.2% year-over-year) and 17.5% EBITDA growth. Yet the market reaction was underwhelming: shares dropped 4% immediately after the announcement to the $540s and currently trade at $554.73, down 3.5% from November highs near $572. Why did strong results fail to lift the stock? Casey's is a Midwest and Southern convenience store chain headquartered in Ankeny, Iowa, operating approximately 2,921 stores. The company differentiates itself through a business model combining prepared foods (pizza, donuts, sandwiches) with fuel services, commanding a $20.8 billion market capitalization. Key competitors include Circle K (owned by Alimentation Couche-Tard), 7-Eleven (Seven & i Holdings), and Murphy USA. The 2024-2025 period saw active M&A in the convenience store sector, highlighted by Couche-Tard's $39 billion bid for Seven & i (ultimately rejected) and Refuel's exploration of a $1.5 billion sale. Casey's completed the Fikes acquisition in fiscal 2025, maintaining an aggressive expansion posture. Dissecting Q2 results reveals the investment thesis centers on inside sales momentum. Total inside sales reached $1.66 billion, up 13% year-over-year, with same-store sales growth of 3.3%. The prepared food and dispensed beverage segment grew 12% to $467.8 million, with same-store growth of 4.8%. Grocery and general merchandise sales hit $1.19 billion (up 13.4%, same-store +2.7%). In fuel, margin per gallon improved to 41.6 cents from 40.2 cents year-ago, while total gallons sold surged 16.8%, driving fuel revenue to $2.69 billion (+11.3%). Operating expenses rose 16.7% to $711.6 million, but this reflected 236 net new stores year-over-year; on a same-store basis, operating expense growth was just 4.5%. EBITDA margin expanded 30 basis points to 9.1%, and inside gross margin improved 20 basis points to 42.4%. Management raised fiscal 2026 guidance substantially. EBITDA growth expectations increased from 10-12% to 15-17%, while inside same-store sales guidance narrowed from 2-5% to 3-4%, signaling confidence. The company reaffirmed plans to open at least 80 new stores in fiscal 2026, part of a three-year target of 500 store additions. CEO Darren Rebelez emphasized continued innovation and market differentiation on the conference call, while CFO Steve Bramlage noted customers are "less elastic than average," highlighting lower price sensitivity. Indeed, Q2 saw energy drink and candy sales drive inside margin expansion, with prepared food showing 10.3% two-year stacked growth, demonstrating resilient premium category demand. However, valuation concerns temper investor enthusiasm. Casey's trades at a P/E ratio of 34.2x with a forward P/E of 30x. The PEG ratio of 2.02 appears stretched given next year's projected 13% earnings growth. The convenience store sector averages a P/E around 20x, meaning Casey's commands a ~1.7x premium—a reward for delivering 20%+ annualized growth over the past three years. The challenge is that growth is expected to decelerate to 15-17%, constraining upside at current multiples. The market appears to have concluded "results are strong but already priced in." Shares surged from $427.88 in late November to a peak of $575.98 in early December before pulling back to the current $554.73, with six-month returns at just 8.47%. Insider trading patterns warrant attention. Director Mike Spanos accumulated shares across four transactions from September 2024 through July 2025, purchasing a total of 1,223 shares. Notably, his purchase prices ranged from $376 to $503—10-32% below the current $554.73 price. Even excluding automatic dividend reinvestment plan (DRIP) purchases, Spanos deliberately bought at $376 (September 2024), $397 (December 2024), and $391 (March 2025), consistently adding during price corrections. Conversely, senior executives executed a cluster of sales in mid-June 2025: CEO Rebelez sold 20,000 shares at $508 (~$10.16 million), COO Williams Koschel sold 8,000 shares at $508 (~$4.06 million), and CFO Bramlage sold 8,478 shares at $509 (~$4.32 million). All were planned RSU vestings with future vesting schedules and performance conditions disclosed in footnotes through 2028. The pattern is clear: directors bought low, executives sold high per compensation schedules. This suggests directors perceive long-term value while executives mechanically liquidate vested awards. Macro headwinds loom. The Conference Board's December consumer confidence index fell to 89.1 from 92.9 in November, marking five consecutive monthly declines. The University of Michigan consumer sentiment index plunged 28.5% year-over-year to 52.9, with 12-month inflation expectations at 4.2%, well above the Fed's 2% target. Labor market anxiety is rising: 63% of Conference Board respondents expect unemployment to increase over the next year. Convenience stores occupy a dual position in this environment. On one hand, they're defensively positioned with staple demand (tobacco, beverages, quick meals) holding up. On the other hand, premium prepared foods and specialty snacks are often the first discretionary items consumers cut. The CFO's emphasis that "our customers are less elastic" appears designed to preempt these concerns. Yet Q2's 4.8% prepared food growth modestly decelerated from prior quarters' 5%+ pace, and grocery growth of 2.7% was also softer. Investors should establish measurable criteria. First, Q3 (ending January 2026) inside same-store sales growth must exceed 4%. Clearing the upper end of management's 3-4% guidance band is necessary to justify current valuation. Second, fuel margin must sustain above 40 cents per gallon. While four consecutive quarters of fuel gallon growth is encouraging, Midcontinent fuel market volatility demands margin defense. Third, monitor operating expense growth. Management projects 8-10% for fiscal 2026, but Q2's 16.7% increase (4.5% same-store) suggests efficiency gains or expansion pacing adjustments are needed. Finally, watch whether shares can break and hold above the $575 resistance level—the 52-week high of $575.98 represents a psychological barrier, with a breakout potentially opening a path toward $600. Scenario analysis reveals distinct outcomes. The bull case requires inside same-store sales accelerating to 5%+ and Fikes acquisition synergies materializing, expanding EBITDA margin above 10%. This path could achieve the $600 median analyst price target or even the $700 optimistic forecast, contingent on consumer sentiment recovery and prepared food demand reacceleration. The base case assumes management guidance materializes: 15-17% EBITDA growth and 3-4% inside sales growth. Shares likely consolidate in a $550-600 range with valuation premium maintained but not expanded. The bear case materializes if consumer sentiment deterioration drives inside same-store sales below 2% or fuel margin drops below 35 cents per gallon. Conference Board readings below 80 or unemployment above 5% could reduce convenience store traffic itself. This scenario would trigger P/E derating below 30x, with shares correcting to the $450-500 range. Near-term (1-6 months), shares likely oscillate within $550-575. The next inflection point arrives with Q3 results mid-March (consensus EPS $4.93), testing for a ninth consecutive beat and potential guidance raise. Short-term risks include Trump administration tariff policy (inauguration January 2025), which could pressure costs given high imported product exposure in convenience retail—difficult to pass through to price-sensitive consumers. Positive catalysts include the mid-February dividend payment ($0.57 per share, $2.21 annually, 0.39% yield) and potential share buyback resumption. Buybacks were suspended in fiscal 2025 for Fikes acquisition preparation but are expected to restart in fiscal 2026 with $233 million remaining under authorization. Longer-term (6+ months), Casey's structural advantages persist. Convenience retail is regionally concentrated with significant scale economies, and Casey's dominates the Midwest and South. Adding 80+ stores annually over three years totals 500 locations—a 17% increase versus current store count, providing substantial growth runway. Prepared food margins run 3x+ higher than average convenience store offerings while driving customer loyalty and repeat visits—a key differentiation. Twenty-six consecutive years of dividend increases (recently 14% hike) demonstrates management discipline and long-term growth confidence, with payout ratios under 15% leaving ample room for further raises. Long-term risks include structural fuel demand decline from EV adoption, traffic loss to online delivery, and labor cost pressures from minimum wage increases. Casey's is responding with EV charging station expansion, mobile order/pickup enhancements, and automation investments. In summary, Casey's demonstrated execution excellence with an eighth consecutive earnings beat and raised guidance, but 34x P/E and 2.02 PEG ratio constrain further upside. Director Spanos's persistent low-price accumulation signals confidence, yet June executive RSU sales at $508-510 provide a reference point relative to the current $554.73 price. Results are undeniably strong, but shares have front-run the fundamentals, creating valuation pressure. Investors should verify three Q3 criteria: inside same-store sales above 4%, fuel margin sustaining above 40 cents, and operating expense growth below 10%. Meeting these conditions enables a $575 resistance breakout toward $600; missing them risks correction toward the mid-$500s. Deteriorating consumer sentiment and sticky inflation add macro uncertainty. At this juncture, accumulating during pullbacks appears more prudent than chasing current levels.