JPMorgan Downgrades Casey's General Stores (CASY) to Underweight

JPMorgan analyst John M Royall downgraded Casey's General Stores (NASDAQ: CASY) from Neutral to Underweight with a price target of $337.00 (from $300.00).

The analyst comments: "CASY's SSS in the merchandise business has held in well as the industry has experienced some pressure, due to a relatively low exposure to lower income consumers, market share pickup in prepared foods as a lower cost option vs. QSRs, and the company's more stable pricing approach on prepared foods. More recently, we think CASY's Prepared Foods margins will be negatively impacted by rising cheese costs, which will likely not be passed on to the customer fully. With group low exposure to fuel gross profit, CASY has not seen the relative uplift as more fuel exposed US peers from fuel margin, although the uplift has been significant for all public players. CASY also has high exposure to opex headwinds given its higher per-store opex footprint with the standard store including a kitchen. That said, the company is performing well on controllable cost metrics, with same-store labor hours declining over each of the past 9 quarters. While we think the overall picture for CASY's business is somewhat balanced here, we are concerned with the company's group-high exposure to inside store sales, particularly in a rising ingredient cost environment. On valuation, the company now trades well >2 standard deviations above its long term average EV/NTM consensus EBITDA multiple, while we think today's share price implies a ~4c/gal higher fuel margin than we model as long-term mid-cycle."

For an analyst ratings summary and ratings history on Casey's General Stores click here. For more ratings news on Casey's General Stores click here.

Shares of Casey's General Stores closed at $373.02 yesterday.

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