Project Rates Cst Brands ( Cst ) A Buy

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This valuation project rates CST Brands (CST) a BUY. This is driven by several positive factors observed from the company and the industry, which lead us to believe that CST should give investors a better opportunity than an average market portfolio. Despite the company’s weak growth in EPS during the most recent fiscal years due to poor revenue figures. Analysts on wall streets are confident in setting a high target price for CST. Revenue fell significantly compared to industry’s average of 10.7%. Examining the company’s financials and annual report, I did not identify any strong reasons that could cause the continuation of decline. Combined with the positive current market outlook, I believe CST…show more content…
So I assumed minimal CapEx for the forecasted five years’ period. The most recent financials used for valuation show a rather weak performance in terms of sales, reflecting the lowered gasoline price. However, I believe revenues are on to recovery and will start to grow from 2016. We see strong signals for improvement in the global economy. According to Capital IQ’s equity research, there’s an expansion of foodservice offering, with a greater focus on lunch and dinner selections, supporting comparable-store sales growth. (Capital IQ, 2016) With these as the backdrop, I am assuming a positive outlook on CST’s earning potentials in the future years. The estimated financials over the coming five years are stable in general. Costs of sales are assumed to decrease as the company gradually realize the cost saving benefit from previous acquisitions. It is important to point out that, the increase in COGS recorded in FY2015 was partly attributable to the acquisition of CrossAmerica. If we would exclude the effect of this acquisition, COGS declined 26% during the year. Combined with the cost reduction benefits mentioned above, it is reasonable to forecast a slight decline in COGS in the future five years. CST brands are one of the largest independent retail and wholesale distributors of motor fuel and convenience merchandise in North America. Their operations are separated into two main broad categories: retail convenience store and wholesale motor fuel supply.
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