UPDATE 1-FBR cuts Casey's on rising costs, fuel-price fears

(Recasts; adds details, share movement)

May 20 (Reuters) - Friedman Billings Ramsey downgraded Casey's General Stores Inc (CASY.O) to "underperform" from "market perform" as it expects rising fuel prices and input costs to hurt the retailer in the financial-year 2009, sending the company's shares down 9 percent.

The brokerage expects the company, whose convenience stores sell gasoline in addition to prepared food, tobacco, beverage and health products, to face weak gasoline comparable-store sales throughout the year ending April 30, 2009.

Friedman Billings Ramsey also expects the retailer's fiscal-year 2009 profit to take a blow from rising input costs and higher credit card fees.

Rising dairy and wheat costs may drag down margins of Casey's prepared foods segment, which is expected to roll out a made-to-order Casey sub as well as an expanded coffee offering in the next financial year.

"We believe Casey's will face several headwinds in the fiscal-year 2009, and while these headwinds are almost entirely beyond management's control, we believe earnings will be negatively impacted," FBR analyst Karen Short said in a note to clients.

Short however expects Casey's gasoline sales at stores open more than a year to recover as public transportation in its markets is limited and customers would have to resort to own vehicles or other options."

The company operates its stores in nine Midwest states, including Iowa, Missouri and Illinois.

Short, who cut her price target on the Ankeny, Iowa-based retailer to $21, said even with slightly higher-than-normal margins in fiscal 2009, it sees a fall in profit.

The company's self-service gasoline contributed to 73.3 percent of sales in fiscal 2007, according to FBR.

Shares of the company fell to a low of $20.98, before paring some of their losses to trade down $1.66 at $21.29 Tuesday morning on Nasdaq. (Reporting by Dhanya Skariachan in Bangalore; Editing by Pratish Narayanan)