Alimentation Couche Tard Inc. (TSX:ATD.B) recently reached a deal to acquire convenience store operator Holiday, which adds 374 stores and 148 franchisees under its belt. This is one of many moves to come following the company’s largest ever acquisition of CST Brands, which is expected to give the company a long-term earnings boost once synergies can be fully realized.
Many investors are becoming impatient with Couche Tard’s lack of deals of late and could be a major reason why the stock hasn’t really gone anywhere over the last two years. It’s important to note that the company is just coming off its largest acquisition to date, and investors need to understand that it’s going to take a bit longer to digest such a massive deal. I believe shares are ripe for a breakout which will likely be triggered by positive earnings surprises, which may come later in the year. Patient investors who hang on to the stock despite the slowdown of activity will be rewarded.
Q4 2017 results around the corner
Couche Tard is set to release its Q4 2017 quarterly report on Wednesday. They could go either way. I think the downside from current levels is limited, and shares are trading with a considerable margin of safety relative to the company’s solid growth profile. Prudent investors looking to pick up shares should consider picking up half of their position now and half after the earnings release, just in case the quarter is an underwhelming one.
In my last piece, I mentioned multiple long-term catalysts that could send shares of Couche Tard a lot higher. The management team is firing on all cylinders, and I believe investors are overlooking the value to be had with shares at the $60 level. The management team has a proven strategy to grow earnings, and although the company has grown by a significant amount over the past decade, there’s still a lot more room to run for as the company continues its global hunt for value.
Could the rise of electric cars hurt Couche Tard in the long run?
This is one concern that may be stopping Couche Tard from flying higher. Many of Couche Tard’s locations are attached to a gas station, and with the rise of electric cars, we could see a reduction in fuel sales over the next few years. Although this may sound alarming, investors shouldn’t be afraid since the management team has shown it has the ability to adapt to a changing retail space.
Although fuel sales will gradually decline over the next decade, it’s very likely that we will see a massive roll-out of charging stations across all locations. Charging your electric car usually takes a lot longer than it does to pump your tank full of gas, so electric car chargers are more likely to go to the store, buy a meal or a coffee and sit down to enjoy it while grabbing some goods to go.
The convenience store of the future will probably look a lot different than what we are familiar with. Select convenience stores in Europe or Asia are actually nice places to hang out; they have plasma televisions to watch and hot foods that are meant to be consumed immediately.
Couche Tard is continuously changing its strategy based on what its consumers want. The company will always be looking for ways to make its convenience stores more convenient. Couche Tard is creating the convenience store of tomorrow while expanding its footprint across the far reaches of the globe.
Stay smart. Stay hungry. Stay Foolish.
