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Shares of Casey's General Stores (NASDAQ:CASY) have risen some 5% over the past trading week. The operator of convenience stores had a great start to the fiscal year of 2014.

The company has a great track record in creating shareholder value as it has focused on a niche market, insulating it from competition from industry giants. The long term appeal remains attractive, despite the fact that shares are trading around all time highs.

First Quarter Results

Last week, Casey's reported its first quarter results for the fiscal year of 2014. The company generated $2.11 billion in quarterly revenues, up 13.2% on the year before. Revenues were in line with consensus estimates of $2.10 billion.

Net earnings rose by 42.7% to $55.7 million in the meantime, as earnings per share rose by a similar percentage to $1.43 per diluted share. Earnings comfortably beat consensus estimates of $1.26 per share.

CEO Robert J. Myers commented on the first quarter performance, "We are off to an excellent start of the fiscal year driven by strong sales throughout all categories. The gasoline category of our business is performing exceptionally well in both sales and margin."

Looking Into The Results

Both sales and earnings growth were driven by solid sales of gasoline. Company-wide gross margins rose by almost a full 100 basis points to 16.34% of total revenues, while operating expenses inched up by 7 basis points to 10.2% of total revenues.

Gasoline revenues now made up 72% of total revenues, increasing 13.8% to $1.51 billion. Gross profits came in at $94.3 million, thereby generating 27% of total gross profits. Gross margins came in at 6.2%, up 180 basis points on the year before. Total gallons being sold rose by 8.2%, driven by a 3.2% increase in same-store gallons. Average margins rose to $22.1 cents per gallon, far above the fifteen cents target for the year.

Grocery & other merchandise revenues rose by 9.7% to $423.6 million. Gross margins at the business fell by 70 basis points to 32.7% of total revenues. Same store sales rose by 6.1% driven by market share gains in the cigarettes department.

The prepared food & fountain unit reported solid growth as well as revenues inched up by 16.5% to $166.2 million. Gross margins fell by 170 basis points, but were still a respectable 61.8% of total revenues. Same store sales rose by 11.9% driven by a the expansion of stores being open for 24-hours a day, and pizza delivery service.

Given the sizeable revenue growth, combined with margin expansion, after-tax net margins inched up by 55 basis points to 2.63% of total sales.

Valuation

Casey's ended its first quarter with $190.9 million in cash and equivalents. The company operates with $819.9 million in total debt, for a net debt position of around $630 million.

For the fiscal year of 2013, Casey's generated annual revenues of $7.25 billion, up 3.8% on the year before. Net earnings fell by 5.3% to $110.6 million.

Trading around $71 per share, the market values Casey's at $2.7 billion. This values operations of the firm at merely 0.4 times annual revenues and 24-25 times annual earnings over the past year.

Some Historical Perspective

Long term holders in Casey's have seen tremendous returns. Over the past decade alone, shares have five-folded from levels around $15 in 2004 to fresh all time highs of $73 in recent weeks.

Between the fiscal year of 2010 and 2013, Casey has increased its annual revenues by a cumulative 56% to $7.5 billion. Net income stagnated around the $110 million mark, but is set to rise this year. The company has retired a quarter of its share base in the meantime.

Investment Thesis

Casey's has a great long term track record in creating shareholder value, and momentum has accelerated further in the first quarter with all divisions picking up steam.

Literally all divisions reported solid revenue growth, driven a range of improvements initiated at the company. The fuel business with he Fuel Saver program implemented in a partnership with Hy-Vee of last year, did really well. But price cuts in the other merchandise businesses have spurred demand as well.

The company furthermore opened 4 new stores, acquired 3 other stores while replacing 3 stores in the past quarter. The company aims to open 40 to 45 stores for the year, ending the past quarter with a store count of 1,749. Besides growing stores, Casey's is boosting sales per store by adding more stores to the 24 hour format, while also offering pizza delivery services. For the fiscal year of 2014, Casey's aims to convert some 100 stores to the 24-hours format.

Casey's General Stores has found a very profitable niche market. Instead of focusing on high-density areas, the company operates some 60% of its stores in areas with 5,000 or less in population. This insulates the company from competition with giants like Wal-Mart (NYSE:WMT), Kroger (NYSE:KR) or Costco Wholesale (NASDAQ:COST).

Extrapolating last quarter's earnings into the year, would result in full year earnings of around $5.00 per share, valuing the business at 14-15 times annual earnings. This is after year to date returns of some 34%.

Then again, the company has had a great operational track record over the past decades as it has consistently grown its operations in a profitable manner. On top of this comes a decent pace of share repurchases in recent years, warranting the current valuation for the niche market player.

While there are few triggers for spectacular short term returns, the long term investment thesis remains attractive.

Source: Casey's General Stores - Excellent Long-Term Investment And Track Record