2 Stocks to Watch This Week

Here are two companies to watch as the Canadian results season moves into gear.

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Bull markets are beautiful to observe — especially if you are an investor in companies regularly reaching new highs.

The Toronto Stock Exchange 300 Composite Index (^GSPTSE) closed the past week on another high, having gained 1.2% during the week and 25% over the past year. More than 85% of the companies included in the broader Canadian index have had positive returns over the past year, while 65% returned more than 15% — the gains were substantial and broad-based.

The main corporate results season is starting to get traction with some of the larger companies expected to report results in the coming week. The expected highlights are discussed below.

Alimentation Couche-Tard (TSX: ATD.B) is one of the largest convenience store operators in North America and also has a sizable presence in Europe. Most of its stores offer road transportation fuel and convenience products, with key brands including Couche-Tard, Circle-K, and Statoil.

The company will report its fourth-quarter 2014 financial year results on July 7, and analysts are expecting profits per share of U.S.$0.25 compared to U.S.$0.20 for the same period a year earlier, with the range of estimates varying between U.S.$0.24 to U.S.$0.27. Profits are still positively influenced by synergies that continue to flow from the sizable $2.6 billion acquisition of 2,300 European Statoil fuel and retail sites in June 2012. The company expects to save an annual equivalent of $150-$200 million by December 2015 as a result of the renegotiation of supplier agreements, the reduction of in-store costs, and the restructuring of certain departments.

Despite a decline in revenue, the company reported strong results in the previous quarter, with a 28% increase in earnings per share, which was driven largely by a decline in operating costs. The question for the final 2014 quarter is whether the revenue line can start to grow again.

The company’s share price has performed well over the past 12 months, having increased by 41% since July 2013. A valuation of around 20 times 2014 profits leaves scant room for disappointment.

Cogeco Cable (TSX: CCA), the fourth-largest cable operator in Canada and now also among the larger U.S. cable operators, is due to announce its third-quarter 2014 results on Wednesday. Analysts are expecting a profit per share of $1.22 compared to $1.08 for the same quarter a year ago.

The previous quarterly results, supported by the lower Canadian dollar, produced an increase in EPS of 18% despite declining subscribers to its Canadian video and telephony services. On the positive side, its recently acquired U.S. cable service, Atlantic Broadband, recorded a small increase in overall subscribers, and the enterprise division, which provides cloud and data services, also reported a higher profit contribution.

The current quarterly results will again be supported by the weaker Canadian dollar that prevailed during the quarter, price increases for its Canadian cable services, and another increase in profits from the enterprise division. However, there will be close scrutiny of ongoing subscriber losses to Canadian cable services and management actions to improve its position.

The share price of Cogeco has increased by 25% over the past year but has pulled back from the recent highs. The share is not expensively priced at an EV/EBITDA ratio of around six times when compared to both its Canadian and U.S. peers. Ongoing sound growth supported by ample free cash flow can get this stock moving in the right direction again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Deon Vernooy does not hold shares in any company mentioned in this article.

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