Is It Time to Short Casey's General Stores?

What’s happening: Shares of Casey’s General Stores have been on a bull run, defying the general downturn in Wall Street. The company is scheduled to report its fiscal third-quarter results after the closing bell on Monday, March 9.

What happened: Casey’s missed revenue estimates in the previously reported quarter, it has undertaken several initiatives to boost sales. Moreover, current estimates for revenue and earnings are low, following some downward revisions over the past three months.

These factors position Casey’s to report its results ahead of expectations. However, the stock has already risen in anticipation of an earnings beat.

• The consensus revenue estimate stands at $2.28 billion, representing 11.2% year-over-year growth.
• The estimate for earnings is 89 cents per share, down 21.2% from the same quarter in the previous year.

Why it matters: Fuel sales contribute the most to Casey’s overall revenue. The company has recently been recording weak same-store sales for fuel. Its fuel sales shrank 6.6% in the fiscal second quarter, while fuel gallons same-store sales were down 1.8%. The company had issued soft guidance for fuel gallons same-store sales growth for fiscal 2020, projecting between a decline of 1% and growth of 0.5% in the year. 

Rising costs have already been a concern area for Casey’s, which projected 7%-9% increase in operating expenses for fiscal 2020.

Casey’s value creation plan for expanding earnings and sales may give a slight boost to its fiscal third-quarter results. Among its latest initiatives, the company began a new fleet card, loyalty program and online ordering. It launched a new website and mobile app to facilitate easy ordering for customers and launched Casey’s Rewards, its first digital loyalty program.

Management is focusing on curtailing costs and improving efficiency in distribution. To expand its presence, the company recently announced the acquisition of Center Point Travel Plaza in Iowa.

How the shares have performed so far: Investor sentiment has been positive for Casey’s, even amid the widely bearish sentiments on Wall Street. The stock has gained more than 6% in the last five trading days and is up 9% year to date. Shares have gained more than 31% in the last one year. With the stock trading at these elevated levels, there could be some short selling after the company reports results.

What to watch: Casey’s is under pressure to top estimates this quarter, given its various initiatives to boost profitability. Investors await management’s comments related to the decline in prices and the impact of coronavirus on its business.

Investors will be watching US markets today, with the three major indices closing lower on Friday.

Context: US stocks declined on Friday, finishing a rollercoaster week on Wall Street. The greenback also slipped versus major rivals after a massive decline in oil prices and a rise in coronavirus cases outside China.

Details: Oil prices were down more than 10% on Friday, after the deal between the OPEC and its allies fell apart. Following the collapse of OPEC+ talks, Saudi Arabia announced a surprise cut in prices, triggering what could become a crude oil war with Russia. Fears of a price war between these two major oil producers sent prices plummeting around 30% on Monday.

Investors rushed to safety assets, pushing 30-year US yields below 1% and 10-year yields below 0.5%. The US dollar extended its decline versus rivals and fell to its lowest level in three years against the Japanese yen. The greenback slipped 3% versus the yen to 101.58. The euro was trading higher by 1% versus the US dollar.

The number of coronavirus cases exceeded 107,000 globally, as the outbreak spread to more countries, causing further economic disruption.

US stocks closed lower on Friday, with the Dow declining more than 250 points to 25,864 and the Nasdaq 100 down 1.87% to 8,575. The S&P 500 slid 1.71% to close at 2,972. The 30-stock benchmark had lost around 900 points at one point during the previous session; but erased some of these losses in the last 10 minutes of trading. The Dow rose 1.7% on the week, while the S&P 500 index was up 0.6%.

Energy stocks were the worst performing, down 5.6%. Airline stocks recovered slightly, providing some relief to the markets.

On the economic data front, the US economy added 273,000 jobs for February, exceeding estimates of 175,000. The unemployment rate dropped to 3.5%.

Why it matters: US markets are likely heading for a strong slump today, with crude prices recording the largest decline since the Gulf War of 1991. With the US economic calendar being light today, there is little hope of support to the markets.

What to watch: The market will be closely monitoring the Dow, Nasdaq and S&P 500, with stock futures pointing towards a lower start. US inflation data is scheduled to be released today and expectations call for a decline to 2.50% in January, from a reading of 2.53% in December.

Other Market: Most European indices were trading lower at 10:40am GMT, with the FTSE 100, German 30 and French 40 all down by more than 6% each.

Mexico’s inflation rate, Canada’s housing starts and building permits as well as US consumer inflation.