The current macro environment has created favorable conditions for convenience store sales growth.

Wells Fargo Securities has predicted that growth in the convenience store market will be greater than initially expected, due to solid fuel margins and the favorable macro environment that is benefitting in-store sales. The long-term outlook for the industry remains positive.

In the company’s recent report, Wells Fargo Securities reiterated its Overweight sector rating on the c-store industry and revised its estimates.

• CST Brands– Wells Fargo Securities has raised earnings per share estimates for quarter two, fiscal year 2016 and fiscal year 2017 by two cents, four cents and five cents, respectively, to 43 cents, $1.70, and $1.90. Wells Fargo also increased its valuation range by $8 to $49 – $51.
• Murphy USA – Wells Fargo has raised its valuation range $11 to $84 – $86, and the earnings per share estimates for quarter two, fiscal year 2016 and fiscal year 2017 by three cents, 11 cents and 11 cents to $1.05, $4.57 and $5.28, respectively.
• Casey’s General Stores Inc. – Wells Fargo has raised its valuation range $10 to $124 – $126. It has also raised its earnings per share estimates for quarter one 2017, fiscal year 2017 and fiscal year 2018 by eight cents to $1.64, $5.50 and $6.34.
• Wells Fargo also reiterated its Outperform on CST Brands and Murphy USA.

A Deal is Likely to be Reached for the Sale of CST Brands
According to the report from Wells Fargo Securities, CST Brands has outperformed the market over the last several months, based on the announcement that the board had initiated a strategic review process in early March. Wells Fargo expects the strategic review process to result in a sale of the company.

“We believe there is a high probability that a deal gets done, and our analysis suggests an acquisition for $53-$56 per share could be justified by a number of strategic buyers given the implied multiple including synergies would be greater than 10 times the last twelve months (LTM) EV/EBITDA,” said Bonnie Herzog, managing director of beverage, tobacco and convenience store research, Wells Fargo Securities LLC. “Further, our detailed sum-of-the-parts analysis suggests a valuation of $54 per share for CST’s assets, excluding any intangibles or non-operational assets acquired, further supporting our take-out analysis. While we acknowledge there is a risk of a deal not getting done, we believe downside risk to the stock would be to $38 per share in that scenario. Therefore, on a risk-adjusted probability basis, we see further upside potential to the stock, particularly for long-term shareholders willing to weather near-term pressure should a deal not be reached.”

Murphy USA – Well Positioned To Outperform – Favorable Risk-Reward Ahead Of Q2 Results –

Given the company’s low 2.5 cents per gallon (CGP) fuel margin breakeven point and its Product Supply & Wholesale (PS&W) division, Murphy USA is well positioned to thrive with lower fuel margins. Wells Fargo reported that Murphy USA’s PS&W helps offset the reduction in profits associated with lower retail fuel margins.

“With RIN (renewable identification number) prices still strong, we believe MUSA is well positioned to deliver on its earnings growth targets and the market is not giving it credit for: (1) the benefit from successful raze and rebuilds, new supercoolers and remodels; (2) back-half weighted new store openings; and (3) ongoing store OpEx reductions,” Herzog concluded.