Alimentation Couche Tard Inc. (TSX:ATD.B) reported solid fourth-quarter results which were boosted by the Esso acquisition. Shares responded by surging in a single trading session, but most of the gains were lost as shares of ATD.B sold off in the days following the strong results. I believe now is a fantastic opportunity for long-term shareholders to load up on shares before the company really starts to impress once its CST Brands synergies are reflected in earnings.
Fantastic quarterly results, but the rally was short-lived
Total revenue for the quarter was at US$9.6 billion which was nearly 30% higher than the US$7.4 billion reported during the same period last year. Net profit jumped 36.1% to US$0.49 per share compared with the same period last year. Couche Tard delivered a solid beat on both the top and the bottom line since analysts were expecting US$9.4 billion in revenue and US$0.46 per share in adjusted earnings.
Shares responded by rallying, but since last week, a huge chunk of the gains from that rally have disappeared for no real reason. I believe the post-earnings rally was warranted, but it was smaller than expected, and the sell-off in the days following the earnings report was completely unwarranted as Couche Tard is a solid bet.
Could shares of Couche Tard be on a sustained rally higher?
Sometimes Mr. Market acts in ways that don’t make logical sense, but if he gives you a buying opportunity, then value investors would be wise to load up on shares.
Shares of Couche Tard have hovered around the $60 level for quite some time, but I believe the last earnings report is enough for shares to form a sustained rally to the upper $60 levels. The immediate reaction from the general public was positive, but in the days that followed, this optimism quickly faded because investors still have unrealistic expectations when it comes to earnings results.
As we’ve seen a countless number of times, companies deliver great results, but shares responded negatively in the short term. The Trump Rally has made the general public so excessively bullish that not only do we expect earnings results to exceed analyst expectations, but we expect results to surge miles above the street consensus.
Bottom line
Couche Tard is firing on all cylinders, and earnings growth hasn’t come to a halt just yet. I believe the second-quarter results deserved a rally, but the general public didn’t seem to think so. There are many tailwinds that the company will be riding over the next few years and investors have the chance to buy shares at a huge discount to the intrinsic value right now.
Stay smart. Stay hungry. Stay Foolish.
