The Motley Fool

Growth Investors: Alimentation Couche Tard Inc. Is a Strong Buy After Q2 Earnings

Alimentation Couche Tard Inc. (TSX:ATD.B) is a fantastic pick that will outperform for many years to come thanks to its very experienced, disciplined management team and a proven strategy of growing earnings for the long term.

The stock reported earnings this Monday to go with a nice dividend hike. While the earnings release was quite modest, I believe it represents a chance for growth investors to jump in as the blow to earnings this quarter was affected by temporary disasters, such as a hurricane and a pipeline leak, that hurt sales. Also, recent acquisitions made by the company haven’t been fully reflected in the quarter’s numbers.

Care for a dividend hike?

The company reported decent Q2 2017 earnings and raised the dividend by 16% to $0.09 per share. The earnings missed analyst expectations by just one cent, and revenues were $8.45 billion, which was $590 million less than what analysts were expecting. The lower than expected numbers can be attributed to the fact that fuel margins were low last quarter, but this is expected to turn around as oil prices begin to hit the $60 level next year.

There was also a lot of physical destruction during the quarter: there was a hurricane, flooding, and a pipeline leak that affected sales at over 500 stores. Obviously, if you take a step back and look at the big picture, this is a temporary issue that is nothing more than a buying opportunity for investors who want this fantastic business in their portfolio.

I believe the quarter would have been a fantastic one if it weren’t for the natural disasters that affected merchandise sales across the board. Thanks to the disasters that lowered sales this quarter, a huge rally will be delayed for a future quarter.

These kinds of disasters happen, but it’s important to note that they will not leave any type of long-term negative impact on the business itself. I believe that the next few quarters will send the stock into the stratosphere, as the company reports disaster-free earnings.

There’s no question that the acquisitions haven’t been fully recognized yet, but next year I believe the company will squeeze every last synergy from the acquisition spree this year. CST Brands is a very large acquisition, and once synergies are driven out of this acquisition, we could realistically see Alimentation Couche Tard at $100 by the end of next year.

Steady earnings growth is how this fantastic company gets its stock up–this is how Warren Buffett likes his businesses. The next few months leading up to the company’s Q3 2017 report are likely to be quiet, and this would be the perfect time to pick up shares of this dividend-growth, earnings-growth king.

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Fool contributor Joey Frenette has no position in any stocks mentioned.  Alimentation Couche Tard is a recommendation of Stock Advisor Canada.

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