-- Resilient fuel margins and steady consumer demand have supported convenience store or C-store operators, who are expected to post a solid Q1, RBC Capital Markets analysts said in a note on Monday.
The firm maintained a positive outlook on the sector despite rising fuel prices, geopolitical tensions linked to the Iran conflict, and increasingly value-conscious consumer behavior.
"Relative strength in gas margins, long-term track record of demand stability, and sustained momentum from CQ4 [calendar quarter 4] continuing into CQ1 are supportive of our constructive view of the sector despite the backdrop of heightened geopolitical risk, elevated crude prices related to the Iran conflict, and ongoing value-oriented consumer spending," analysts said.
Analysts said that historically, volatility in oil and fuel prices has presented an opportunity for more sophisticated operators to extend a premium over industry-average gas margins, with fuel margins improving consistently over the past decade.
"Despite recent spike in gas prices, retail pricing remains at/around 2023/2024 peaks, and well below peak levels immediately post Russia invasion of Ukraine," analysts said.
Gas demand, however, continues to fall below pre-Covid levels, with analysts attributing crude price volatility post the Iran conflict to fuel incremental pressure on volumes.
"Fuel demand continues to track below pre-pandemic levels, reflecting structural shifts in lifestyle and commuting patterns, higher cost of living, and more recently, demand elasticity from geopolitical-driven spike in gas prices," analysts said.
RBC forecasts Q1 US fuel margins of 45.75 cents per gallon for Alimentation Couche-Tard, a premium of about 8 cents/gal over the industry quarter-to-date average. Analysts said the forecast is above the high end of the range of prior premiums over the past eight quarters, which ranged from 3 cents/gal to 6 cents/gal, reflecting significant fuel price volatility amid the geopolitical backdrop.
For Casey's (CASY), RBC forecasts margins of 39 cents/gal, while Murphy USA (MUSA) is expected to post retail and all-in margins of 24.5 cents/gal and 32.7 cents/gal, respectively.