Casey's General Stores Not Immune To Grocery Headwinds

Kelly Bania of BMO Capital cut the estimates and price target of Casey's General Stores Inc (NASDAQ: CASY) saying the company's "unexpected merchandise comp slowdown was disappointing" as the brokerage expected Casey's to be more immune to broader grocery deflationary pressures.

"CASY not only experienced weaker traffic, which deteriorated throughout the quarter, reaching flat in July (weather also a pressure) despite still strong SS gallon growth of 3%, but also noticed signs of consumer trade-down away from premium brands and to smaller sizes (such as packs vs cartons)," Bania wrote in a note.

In the current scenario, the analyst said the company's maintenance of its Grocery & Other Merchandise comp Goals of 6 percent may be "optimistic" as Bania sees grocery deflationary pressures to last thru first half of 2017.

Since Casey's was less optimistic about achieving the goal of 10 percent in the prepared food category, the analyst lowered his prepared food comp forecast in F17 to 7.3 percent from 9.8 percent.

Bania, who maintained her Market Perform rating, also slashed her 2017 adj.EPS/Revenue/SSS forecast to $5.50/$7.437 billion/6.4 percent from $5.86/$7.458 billion/7.5 percent.

The analyst now has a price target of $118.