Fat fuel margins end, but Wells Fargo’s sector overweight rating continues.
Although fuel margins have fallen significantly over the past several weeks, according to OPIS data for the first quarter of 2015 to date, Wells Fargo assured investors there is no cause for alarm.
Wells Fargo’s analysis suggested:
(1) c-store earnings are greatly influenced by fuel margins;
(2) regardless of short-term fuel margin trends, earnings growth has significantly outpaced fuel margin growth over time;
(3) multiple contraction is limited during periods of negative EPS growth;
(4) sharp drops in fuel margins generally don’t lead to declines in stock prices; and
(5) in-store sales benefit as consumers “treat themselves” to in-store food and merchandise.
“We reiterate our Sector Overweight rating given the many avenues of growth the industry has to continue to fuel outperformance and strong earnings growth despite the inevitable end of fat fuel margins,” said Bonnie Herzog, managing director, beverage, tobacco and convenience research for Wells Fargo.