If you have ever driven through small towns in the Midwest, chances are good that you've seen a Casey's General Store (CASY) along the way. The company owns and operates over 1,850 convenience stores in 14 Midwestern states, primarily Iowa, Illinois and Missouri. More than half of its stores are located in towns with populations under 5,000.

Although fuel prices have dropped significantly since last summer, the decline has not been as great as wholesale fuel costs, which has led to a huge increase in profits. It has also led analysts to revise their earnings estimates significantly higher for the company, sending the stock to a Zacks Rank #1 (Strong Buy).

Third Quarter Results

Casey's reported better-than-expect fiscal 2015 third quarter results on March 9. Earnings per share came in at $1.01, crushing the Zacks Consensus Estimate of $0.73. It was a 166% increase over the same quarter last year.

Revenue declined 7% to $1.672 billion, due to a 16% drop in fuel revenue. However, this was driven by plummeting oil prices, which actually benefited Casey's bottom line. While fuel revenue declined year-over-year, gross profit actually surged 76% as the gross profit margin expanded from 4.5% to 9.3% of revenue. Gross profit per gallon increased from $0.1359 to $0.2203 due to a favorable fuel margin environment that was the result of declining wholesale fuel costs. In other words, the decline in fuel prices it charged to customers was less than the decline in its fuel costs.

Casey's also received another benefit from lower fuel prices: customers who saved money at the pump spent some of those savings inside the stores. This was reflected in a 7.7% jump in same-store sales of grocery and other merchandise and a 14.1% increase in prepared foods and fountain.

Overall, the gross profit margin for Casey's increased from 15.5% to 21.0% of total revenue.

Estimates Rising

Following strong Q3 results, analysts revised their estimates significantly higher for both 2015 and 2016. This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2015 Zacks Consensus Estimate has increased from $3.91 before the report to $4.29. The 2016 consensus has increased from $4.21 to $4.42 over the same period. You can see the sharp uptick in estimates in the company's "Price, Consensus & EPS Surprise" chart:

Valuation

Shares of CASY currently trade around 20x 12-month forward earnings and 13x enterprise value / cash flow. And its price to sales ratio is 0.4.

The Value Style Score for Casey's is currently an 'A'.

The Bottom Line

With expanding profit margins, rising earnings estimates and reasonable valuation, Casey's offers investors a lot to like.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.