Core-Mark Leveraged To Post-Pandemic Improvement, But Watch The Margins

Distribution is a challenging business; done well, it can generate pretty attractive cash-on-cash returns, but razor-thin margins mean you can never take your eye off the ball. Margins have been a challenge for Core-Mark (CORE) over the years, and it has led to a share price that has yo-yo’ed between the low-to-mid-$20’s and the low $40’s for about seven years.

There are certainly things to like about Core-Mark today. The company should see higher-margin food sales rebound in the second half as consumer behaviors normalize, and the company is likewise leveraged to what should be a new wave of growth in in-store prepared foods at convenience stores (or “c-stores”). On the other hand, sustained FCF generation leverage has been hard to come by and is crucial to driving more upside.

I do see a decent, but not spectacular, potential return from here, and while there is no reason that Core-Mark should see another sharp pullback, it’s worth noting that those have often been good times to buy for more patient investors.

 

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Core-Mark Leveraged To Post-Pandemic Improvement, But Watch The Margins