Fuel Margins Take a Tumble

WASHINGTON, D.C. — The end of "fat" fuel margins is "inevitable" for convenience stores as gasoline prices continue to rise, according to a new report issued by Wells Fargo Securities LLC.

As of Monday, the national average price for regular gasoline had risen for 28 consecutive days for a total of 27 cents per gallon. This is the longest upward rising streak since last spring, reported AAA.

At the beginning of February, 25 states enjoyed an average price of below $2 per gallon at the pump. This figure has now dwindled to just two states: Utah ($1.95) and Idaho ($1.95). Conversely, Hawaii has the most expensive fuel per gallon at $3.04, followed by California ($2.95) and Alaska ($2.61).

The average nationwide price for regular unleaded gasoline reached $2.30 on Monday, 5 cents more than one week ago and 26 cents more than one month ago. However, motorists are still saving $1.11 per gallon vs. one year ago.

An explosion at an ExxonMobil refinery in Torrance, Calif., and refineries conducting seasonal maintenance are the main reasons for gas prices rising in the past month, according to AAA. The trade group added that there is a good chance gas prices will continue to rise in the spring, although ample domestic fuel supply could keep a cap on rising prices.

Despite declining fuel margins, Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities, still believes the overall c-store industry is strong. She's tagged the publicly traded companies in the industry — which include Casey's General Stores Inc., CST Brands Inc., The Pantry Inc. and Murphy USA Inc. — with a "Sector Overweight" rating based upon analysis of falling fuel margins on earnings, valuation and stock prices of c-stores.

"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," Herzog wrote in the report.