Casey's General Stores: Rural Expansion Gambit – Growth or Overvaluation?

Casey's General Stores (CASY) has been on a tear, expanding its convenience store footprint through acquisitions and rural penetration. But with the company's stock price up over 50% in the past two years, investors must ask: Is this growth story sustainable, or is the market pricing in too much optimism?

The Expansion Play: A Rural Retail Powerhouse
Casey's has become a juggernaut in the convenience store sector, leveraging strategic acquisitions to fuel its growth. The crown jewel of its recent moves was the $1.5 billion acquisition of 198 CEFCO stores from Fikes Wholesale in late 2024. This deal alone added nearly 7% to its store count, bringing total locations to 2,904 by April 2025. The focus is clear: rural dominance.

[text2img]A Casey's convenience store in a small-town U.S. setting, highlighting its "all-day eatery" brand and expansive fuel pumps[/text2img]

The CEFCO stores, concentrated in Texas, Mississippi, and the Midwest, have positioned Casey's to capitalize on underserved rural markets. Texas alone now hosts over 300 stores, up from 150 pre-acquisition, and expansion continues. In 2025, the company built or bought 270 stores—its highest annual total—while plans for 80+ new stores in 2026 aim to hit a three-year target of 500 new locations.

The financials back this strategy. Revenue rose 7.2% to $15.9 billion in fiscal 2025, with EBITDA jumping 13.3% to $1.2 billion. Fuel gross profit grew 21% in Q4, while inside sales (groceries, beverages, etc.) surged 12.5%, fueled by strong performance in hot sandwiches and prepared foods. Labor efficiency improvements—12 straight quarters of reduced hours—have offset wage inflation, a rare feat in an era of tight labor markets.

Growth Potential: The Bull Case
1. Market Share in Underserved Areas: Rural convenience stores lack scale, making them ripe for acquisition. Casey's has a proven model of integrating small chains into its efficient operations, leveraging economies of scale.
2. Texas Dominance: With 16,000+ convenience stores in Texas (the nation's largest market), Casey's is directly challenging rivals like Buc-ee's. Its focus on foodservice—hot sandwiches, coffee, and a 9M-member loyalty program—differentiates it in a fuel-centric market.
3. Balance Sheet Strength: Despite debt rising to 1.9x EBITDA (within covenant limits), Casey's maintained $1.2 billion in liquidity. The dividend, increased 14% in 2025, signals confidence in cash flow stability. Historical data supports this confidence: backtests reveal that CASY's stock has a 64.29% win rate over 3 and 10 days following dividend announcements, suggesting positive short-term momentum around these events.

4. Three-Year Target: Adding 500 stores by 2026 could push EBITDA to $1.3–1.4 billion, assuming 10–12% annual growth.

Valuation Risks: The Bear's Warnings
While the growth story is compelling, risks loom large:

1. High Valuation: At ~14x forward EBITDA (vs. peers like 7-Eleven at ~8–10x), the stock may be pricing in perfection. Any hiccup in store integration or margin compression could dent sentiment.
2. Margin Pressures: Fuel margins dipped to 37.6 cents in Q4—down from 39.5 cents in 2024—due to lower-margin CEFCO stores and broader market volatility. If geopolitical risks (e.g., Ukraine conflict) disrupt fuel supply chains, margins could worsen.
3. Integration Costs: The CEFCO deal's $25–30 million in one-time costs were manageable, but future acquisitions may strain profitability.
4. Competitive Threats: Buc-ee's, with its massive Texas footprint, and Walmart's gas stations are formidable rivals. Casey's must keep innovating to stay ahead.

Investment Decision: Hold with Caution
Casey's is a well-run company with a clear growth path, but the stock's valuation leaves little room for error. Bulls bet on EBITDA compounding at 10–12% annually through disciplined expansion, while bears see a potential correction if margins or same-store sales stumble.

For now, the hold rating makes sense: The company's operational excellence and rural growth narrative justify its premium, but investors should monitor EBITDA trends and margin stability. A pullback to $180–$190 (down from recent $220+ levels) could offer a better entry point.

In short, Casey's is a buy if you believe rural convenience stores are the next big thing—and the market hasn't already priced that in.