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  • The company beat consensus on the top line but missed on the bottom.
  • We still have a long-term bullish thesis on the company given the strong balance sheet and ideal locations.
  • We didn’t anticipate the earnings miss but note that the rising price of crude squeezed its margins.

CST Brands (NYSE:CST) managed to post 2Q earnings of $0.43 (missing $0.49 consensus), however, the top line managed to marginally beat consensus. Operating revenue for 2Q was up 3% y/y, driven by strong U.S. merchandise sales. But motor fuel profit per gallon was down 18% on rising crude prices. Shares are down close to 5% since announcing earnings.

Shares are up right at 11% since we first covered the stock back in July of last year. At the time, we found fair value to be around $39, suggesting there's still 12% upside to the stock. As we noted in July,

What's also impressive about CST is that 81% of U.S. sites are owned and 72% of Canadian COOP sites are owned. This is quite different from the industry average of only 50% owned sites. Ownership mitigates impact of lease risks, where the other big benefits to this is that there is less risk of losing the best locations to lease expirations. Assuming these sites are worth around $1 million apiece, its total store base could easily be worth at least $1 billion.

It is worth noting that CST is trading more in-line with our justifiable 9.5x EV/EBITDA multiple since our article.

Source: Update: CST Brands Earnings

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