Implied Volatility Surging for Casey's General Stores (CASY) Stock Options

Casey's General Stores, Inc. CASY has made a strategic move to strengthen its position in the market. The third-largest convenience store retailer and the fifth-largest pizza chain in the United States has entered a deal to acquire Fikes Wholesale, Inc., the owner of CEFCO Convenience Stores.

The acquisition, valued at $1.145 billion in an all-cash transaction, includes tax benefits worth approximately $165 million, reducing the net after-tax purchase price to $980 million. This buyout involves 198 retail stores and a dealer network, which would increase Casey’s footprint to nearly 2,900 stores across the United States.

Fikes, the company with a rich history dating back to 1952 when it started as a single filling station in Cameron, TX, has grown into a well-regarded operator with locations in multiple states. This acquisition will significantly bolster Casey’s presence in Texas by adding 148 stores in this key strategic market. Furthermore, the deal includes 50 additional stores in Alabama, Florida and Mississippi, along with a fuel terminal and a commissary to support the Texas operations.

Operational & Financial Impacts

The acquisition of Fikes is expected to deliver substantial operational and financial benefits to Casey’s. The strategic alignment and shared values between the two companies were pivotal in driving the acquisition. CASY plans to reinvest in the newly acquired stores, introduce its popular pizza offerings to CEFCO customers and create professional opportunities for Fikes employees.

Casey’s anticipates this acquisition to create significant value for its shareholders in the near and long term. The transaction is expected to be accretive to the company’s EBITDA within fiscal 2025. Representing an approximate multiple of 11 times CEFCO’s pro-forma adjusted 2023 EBITDA, the acquisition is set to close in the fourth quarter of calendar year 2024.

The financing for this transaction will be sourced from Casey’s balance sheet cash and bank financing. CASY projects $45 million in annual run-rate synergies, primarily driven by the completion of kitchen installations in the acquired stores.

Alignment With Growth Strategy

This acquisition is a key component of Casey’s growth strategy, which aims to achieve top-quintile EBITDA growth by expanding the number of units. By acquiring Fikes, CASY will accelerate its growth plan with high-quality assets, significantly enhancing its presence in Texas and the surrounding region. This move complements Casey’s recent acquisition of 22 stores in northern Texas. 

Advisors for Casey’s included BMO Capital Markets Corp., and Paul, Weiss, Rifkind, Wharton & Garrison LLP, with Cleary Gottlieb Steen & Hamilton as antitrust legal counsel. Fikes was advised by BofA Securities, and Bourland, Wall & Wenzel, P.C.

Wrapping Up

Casey's has positioned itself as a strong and dynamic player in the convenience store industry by capitalizing on key growth drivers, embracing technology, expanding private-label offerings, and consistently improving the customer experience. This strategic acquisition underscores the company’s commitment to growth and expansion, positioning it for continued success in the competitive market.

Shares of this Zacks Rank #3 (Hold) company have advanced 22.4% in the past three months, in tandem with the industry’s growth.

3 Stocks Looking Red Hot

We have highlighted three better-ranked stocks, namely Walmart Inc. WMT, Burlington Stores, Inc. BURL and Costco Wholesale Corporation COST.

Walmart has evolved from just being a traditional brick-and-mortar retailer into an omnichannel player. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Walmart’s current fiscal-year sales and earnings suggests growth of 4.3% and 9.5%, respectively, from the year-ago reported numbers. WMT has a trailing four-quarter earnings surprise of 8.3%, on average.

Burlington functions as a retailer of branded apparel products and carries a Zacks Rank #2 at present. 

The Zacks Consensus Estimate for Burlington’s current fiscal-year sales and earnings suggests growth of 9.6% and 25.6%, respectively, from the year-ago reported numbers. BURL has a trailing four-quarter earnings surprise of 21.7%, on average.

Costco sells high volumes of food and general merchandise. The company currently carries a Zacks Rank #2. COST has a trailing four-quarter earnings surprise of 2.3%, on average.

The Zacks Consensus Estimate for Costco’s current fiscal-year sales and earnings suggests growth of 5.2% and 10.3%, respectively, from the year-ago reported numbers.

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