The Pantry, Inc. (NASDAQ:PTRY)

CAPS Rating: 2 out of 5

A convenience store operator in the southeastern United States. The company's stores market a broad selection of merchandise, gasoline and ancillary products and services designed to appeal to the convenience needs of their customers.

Recs

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Player Avatar mikotian (99.85) Submitted: 9/9/2010 5:50:28 PM : Underperform Start Price: $22.42 PTRY Score: +14.75

This company has rallied over 60% because of takeover attempts for its rival CASY.

However, PTRY and CASY are very different companies.
1) PTRY is levered to the hilt, while CASY has a pristine balance sheet
2) CASY generates much higher margins because of its defensible strategy of focusing on tiny markets with limited competition.
3) CASY has strong distribution efficiencies because all of its stores are clustered in a relatively small area and self serviceable by its own distribution center
4) PTRY has overpaid massive for acquisitions, which resulted in big write offs.
5) PTRY does not free cash flow very well, and has been investing well below its depreciation in recent years.
6) The merchandise mix at CASY is much better, and gross margins are higher.
7) A takeout would accelerate PTRY's debt and the buyer will have to refinance. PTRY is a B- rated credit...

While CASY has a lot to offer for both a financial and strategic buyer, who are willing to pay a nice premium for it. PTRY is a crappy, heavily levered operator with no differentiating strategy and a cobbled together store base. No one will try to buy this company.

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