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Alimentation Couche Tard Inc. Has 44% Upside

Alimentation Couche Tard Inc. (TSX:ATD.B) is a fantastic business with a strong management team and a proven strategy to grow earnings for the long term. The stock was flat for 2016 and returned a mere 1.69%. This was one of the worst years the company has had in a long time. I believe Alimentation Couche Tard is one of the strongest growth plays on the TSX right now and is trading at a huge discount to its intrinsic value.

Why is the stock slowing down?

The latest earnings report was underwhelming as the company missed analyst earnings estimates by one cent. I think it was an impressive feat that the company was able to almost meet analyst expectations considering the disasters that occurred in that quarter. A hurricane and a pipeline leak suppressed sales for over 500 locations.

These unfortunate events directly impacted earnings, but this doesn’t worry me at all. These events have absolutely nothing to do with the long-term fundamentals of the business. They’re temporary issues that will most likely never happen again. While other investors write off the stock because of the unimpressive quarter, this is your chance to buy the stock before it soars later this year due to a huge number of tailwinds the stock will ride.

Alimentation Couche Tard Inc. had a very busy year with a number of acquisitions it made. A lot of synergies will be unlocked this year, while the company de-levers its balance sheet. We can expect fewer acquisitions this year since the company needs time to digest the acquisitions from 2016.

This year, Alimentation Couche Tard should continue to see strong organic growth and boost its earnings through synergies. The company is expected to see 37% EPS growth this year, which could send the stock up very fast after the next few earnings reports. There’s no question that the results could have the potential to crush analyst expectations.

What about value?

The stock currently trades at a 23.14 price-to-earnings multiple with a 0.59% dividend yield. The stock is ridiculously undervalued right now considering the huge amount of earnings growth expected this year alone. There are huge tailwinds right now, and I believe the price-to-earnings multiple will drop once the next few earnings reports come out.

The price-to-book multiple is in line with its historical average at 4.6. The stock is very reasonably priced right now given the short- and long-term catalysts that will drive the stock higher.

The stock has slowed down, but the growth has definitely not. I believe 2017 could be one for the record books for Alimentation Couche Tard. TD Securities rated the company as an action list “Buy” with a 12-month price target of $87, which represents a whopping 44% upside from current levels.

This could be your last chance to buy the stock at the $60 level. Buy shares now or you’ll be kicking yourself later.

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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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