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Is Alimentation Couche Tard Inc. Ripe for a Break Out?

Alimentation Couche Tard Inc. (TSX:ATD.B) is a terrific business whose stock has been relatively flat for about two years now. Although it hasn’t moved much during this span, the company has still been growing. Couche Tard will be making its largest deal ever with the acquisition of CST Brands. There are a ton of synergies to be realized, and patient investors who own the stock for the long term will see a surge in earnings which will be followed by a soaring stock.

Defensive stocks have been going out of favour of late. Everybody is bullish, and value is tough to find, but I believe it’s hiding in plain sight for investors who are willing to add these defensive, out-of-favour stocks to their portfolios. Although Couche Tard is in the consumer staples sector, the company is firing on all cylinders when it comes to growth. Couche Tard still has a long way to go to consolidate the fragmented convenience store industry, so the sky is the limit when it comes to potential growth prospects.

Although there are many acquisition opportunities for Couche Tard, the management team is not going all out by acquiring anything they can get their hands on. The management team is one of the best in the business. They’re extremely disciplined and focused on creating long-term value for shareholders. It takes patience to find value, and this is what the management team has. If there’s no value out there, then they won’t make a deal for the sake of short-term gains.

Couche Tard has made a considerable number of acquisitions over the last decade, but it has managed to keep its debt levels in check. Couche Tard’s growth strategy is simple, yet effective. The company acquires smaller convenience store chains at low prices with potential synergy opportunities. Couche Tard then pays off debt and goes on the hunt for the next great deal to drive long-term earnings through the roof.

Although Couche Tard has a $37 billion market cap, founder and executive chairman Alain Bouchard is confident that Couche Tard will “double the size of [the] company again.” There are many growth opportunities in the Asian convenience store market which could offer a compound annual growth rate (CAGR) north of 24% over the next four years. I believe the developing Asian market offers a huge amount of growth to Couche Tard.

Couche Tard stock may have slowed down, but the company is putting its foot on the pedal when it comes to growth. I think the stock is ripe for a breakout which may be triggered by an exceptional earnings report that may happen later in the year.

If you’re a patient investor looking for an undervalued earnings-growth king, then look no further than Couche Tard.

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Fool contributor Joey Frenette owns shares of Alimentation Couche Tard Inc. Alimentation Couche Tard Inc. is a recommendation of Stock Advisor Canada.

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