hhgregg: Will Gas Price Trends Provide Upside?

Mar.19.12 | About: hhgregg, Inc. (HGG)

The national average price for a gallon of gasoline rose for the ninth straight day on Sunday to $3.838. CNN Money points out that is now only about 6.7% below the record high of $4.11 from July 2008. And as you'd expect, rising gas prices are hurting consumer sentiment.

So we're wondering: which retailers are located in areas that have seen falling gas prices? Will these companies benefit from improved consumer sentiment?

To answer questions like these, we've spent months building a database of 200K+ store locations, mapped back to 160 publicly traded retail and restaurant stocks. We're also collecting economic data for every zip code associated with a set of store locations--and gas price trends is one of our most predictive indicators.

Our systems have confirmed the nationwide trend: Of the 11,811 zip codes that we track, 75% of them have seen gas prices rise since the start of March. We also analyzed gas price trends for our universe of store locations. From a preliminary analysis, it's clear that several companies are hurting. A few examples:

Cabelas (NYSE:CAB): Of the 51 stores in our database, only 6 are located in areas that have seen falling gas prices over the last month (i.e. 88.2% of their stores are located in areas of rising gas prices)

Sonic Corporation (NASDAQ:SONC): Of the 1001 stores in our database, only 118 are located in areas that have seen falling gas prices over the last month (i.e. 88.2% of their stores are located in areas of rising gas prices)

Chipotle Mexican Grill (NYSE:CMG): Of the 1154 stores in our database, only 184 are located in areas that have seen falling gas prices over the last month (i.e. 84% of their stores are located in areas of rising gas prices)

But we wanted to find a company that remains (relatively) insulated from rising gas prices.

One of the companies on top of our list was hhgregg (NYSE:HGG). Of the 153 stores in our database, 59 are located in areas that have seen falling gas prices over the last month. In other words, only 61.4% of the company's stores are located in areas of rising gas prices.

Yes, this is not ideal, but this percentage does place the company in our top 5 out of a universe of 160 companies.

To visualize these store locations, we've mapped it onto a Google map. If you want to explore the interactive chart for yourself, click here.

It should be pointed out that HGG released negative earnings guidance at the start of the year, guiding annual net income per diluted share within a range of $1.05 to $1.15 for fiscal 2012 vs. previous guidance of net income per diluted share of $1.26 to $1.41.

As a result of this, the stock has also been a major laggard over the last month. But it's quite possible that most of the bad news is priced into the stock by now. And we tend to think the company's (relative) immunity to rising gas prices might provide some upside potential.

This one is definitely worth keeping on the radar…

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.