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Alimentation Couche Tard Inc. Has 40% Upside

Alimentation Couche Tard Inc. (TSX:ATD.B) is an incredible earnings-growth stock that is actually accelerating its earnings growth by making bigger, better acquisitions. These are not just acquisitions for the sake of obtaining a higher store count–they are actually value plays that will add huge value for shareholders in the company.

Alimentation Couche Tard is your typical Warren Buffett business. It has a simple business model that’s been proven to generate earnings growth for years prior and is likely to generate the same earnings growth going forward. Its dividend is quite small at 0.5%, but the dividend-growth history has been quite impressive. If you’re a long-term holder of the stock, then that dividend may actually grow and make you very rich if you keep this stock and never sell it.

How is Alimentation Couche Tard able to still grow earnings at such a quick pace?

The management team at Alimentation Couche Tard is unmatched; they know the business inside and out and have a proven business model to grow earnings for the long term. The managers are shareholders themselves and are concerned about the long-term prospects of the business–not about short-term fluctuations of the market. They are also fantastic deal makers; they look for opportunities to acquire smaller convenience store chains and drive synergies via increasing operational efficiency.

Management is concerned with value, and they know how to find it very well. I would compare the company to Berkshire Hathaway Inc. in the way that the management team makes its acquisitions, how they find value, and how they drive synergies through the roof.

Another reason why Alimentation Couche Tard will be able to grow for the next 10 years is because of the fact that the convenience store market is highly fragmented right now. This means that growth is unbounded in the short to medium term, because there will always be places around the world the company can expand to.

In 10 years for now, I believe Alimentation Couche Tard will consolidate the convenience store industry in a similar fashion to how CVS Health Corp. took control of the drugstore industry–a fragmented industry in the 1990s. Fast forward 20 years later, and the pharmacy industry is controlled by two main players: CVS Health Corp. and Walgreens Boots Alliance, Inc.

This presents a gigantic opportunity for Alimentation Couche Tard to expand and deliver gigantic returns for many years to come.

Right now the stock trades at a 21.5 price-to-earnings multiple, which is cheap considering the huge earnings-growth potential and predictability of the company. Analysts at TD Securities have the stock as a “buy” with an $87 price target, which represents a whopping 40% upside from current levels. It’s truly a stock that you can buy and forget about for the next decade.

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Fool contributor Joey Frenette has no position in any stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway (B shares). Alimentation Couche Tard is a recommendation of Stock Advisor Canada.

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