1 The unstoppable multibagger is up 4,290% since 2000 to buy and hold forever after its $1.1 billion purchase

Founded in 1959, headquartered in Iowa Casey’s General Stores (CASY 0.49%) steadily expanded through the Midwest to become the third largest chain store by number of stores in the United States. While that size alone makes Casey’s a major player in the c-store industry, it’s the company’s beloved pizza that sets it apart from the crowd.

As the fifth largest pizza chain by number of kitchens in the US, Casey’s often acts as the central restaurant of many small Midwestern communities. With about half of its stores located in cities with fewer than 5,000 residents, the company’s pizza is the top, if not the only, option for customers looking for dinner after work or for weekend football games.

Given its beloved status in the rural communities it serves in the Midwest, Casey’s has delivered a total return of 4,290% since 2000, surpassing S&P 500his grade of 487%.

Despite becoming a 43-bagger in just under 25 years, Casey’s General Stores should still have plenty of gas left in the tank for investors. Here’s what makes the company a stellar “forever” investment, especially after its recent acquisition.

Casey’s General Stores: A Midwest staple with growth ambitions

Despite adding 984 new units to its total of 2,900 stores over the past decade, Casey’s growth may still be in its early stages.

First, about 75 percent of the cities (with a population of less than 20,000) that live within easy reach of the company’s distribution centers do not yet have a Casey’s General Store. While we can’t expect the company to completely flood its operations in each of these open areas, the figure does highlight the remaining growth track available in Casey’s existing footprint.

Second, in terms of increasing profitability, the company has a number of forces working in its favor that could yield higher margins in the long run. One tailwind is Casey’s impressive rewards platform with over 8 million members. By visiting stores 15% more often and spending 13% more per transaction compared to guests, these loyal members create a stickier sales base that the company can count on in any economic environment.

Another tailwind for Casey’s profitability comes from its fast-growing private label operations, which accounted for 9% of domestic sales in the most recent quarter. These 300+ private label products not only bring higher margins than branded items, but fit nicely into the Casey rewards ecosystem because the company can direct customers to its in-house items.

Last but not least, however, Casey’s strongest growth lever that remains could be its continued geographic expansion, either by building new stores or supporting its newly formed mergers and acquisitions (M&A) team. Having recently spent $1.1 billion to acquire Fikes Wholesale and its 198 CEFCO stores in the southern United States, management may tip its hand on its long-term expansion plans.

Image source: Getty Images.

Why Casey’s $1.1 billion acquisition fits its long-term growth strategy

Having already acquired 182 new stores in 2022, Casey’s had previously tiptoed further south. However, buying CEFCO acts more like a “full speed ahead launch” in the region. Bringing 148 new stores to Texas, along with 27 in Florida, 13 in Alabama and 10 in Mississippi, the company is set to increase its store count by 7% from this deal alone.

What makes this acquisition so attractive to investors is that Casey’s isn’t just absorbing these businesses and moving on. Rather, he’s rebranding them, bringing them into the company’s distribution network and upgrading them with a pizza kitchen, which in the past has led to increased food sales of newly acquired stock.

After their remodeling, new M&A stores typically see a 70% increase in earnings before interest, taxes, depreciation and amortization (EBITDA) by the fourth year of integration. With Casey’s generating a prepared food margin of 59% compared to CEFCO’s 31% margin, history is likely to repeat itself as the company plans to put kitchens in 85% of CEFCO’s newly remodeled stores.

After accounting for expected tax benefits and EBITDA synergies, management estimates it will pay just 7 times EBITDA for CEFCO stores, which would be a steal.

Should investors go all-in on Casey’s stock today?

With 8% to 10% annual EBITDA growth through 2026, Casey’s management recently raised EV-EBITDA ratio of 14 might not seem like a massive deal.

CASY EV to EBITDA data by YCharts

However, management is also guiding to generate $1.25 billion in free cash flow (FCF) by 2026 — even as it expects to add another 150 stores. If Casey hits this FCF target (and it has done a good job of meeting similar targets in the past), the current enterprise value would be just 12 times that figure — a deep discount to market averages.

In addition to this potentially cheap valuation, Casey’s is nearly halfway to becoming a Dividend King with 24 consecutive years of dividend growth. While the company’s dividend yield is just 0.5%, these payments use only 13% of Casey’s net income, leaving ample room for continued growth.

Ultimately, Casey’s combination of steady operations, steady growth, and a recently inflated but fair valuation make it the perfect candidate for dollar-cost averaging buys over time.