Shares of Alimentation Couche Tard Inc. (TSX:ATD.B) have gone nowhere for about two years now. Although it appears that the company is experiencing slowed growth and stagnation, that’s actually far from the truth, as there’s still a tonne of growth left.
Does that mean the management team is taking a break? Not necessarily; they’re taking a slow and strategic approach to juicing the synergies from its recently closed acquisition of CST Brands, which is the largest deal made to date.
Couche Tard has been an M&A all-star for many years, and the management team has shown that it knows how to deliver huge value for long-term shareholders from its ability to shave costs and increase the profitability of recently acquired stores. The management team is incredibly disciplined and will not make a deal if there’s minimal value to be had over the long term. They’re not afraid to walk away from a deal if the price isn’t right or if there aren’t enough synergy opportunities available.
The company is a consolidator of convenience stores, but it’s not recklessly spending cash to please shareholders. If there’s value, the deal will be made; otherwise, there are many other places across the globe to look for the perfect deal. Short-term traders will be disappointed in the management team’s strategic approach, but this is actually a great management team attribute that long-term investors should be looking for!
The CST Brands deal is massive, and I believe the realized synergies will be as well. Although earnings haven’t grown at the impressive rate of late, I think a sudden surge may be on the horizon once synergies are unlocked from CST Brands as well as the smaller deals which followed it. It’s going to take some time for Couche Tard to realize all the synergies of the CST Brands deal. Once the synergies are realized, shares of ATD.B could soar to much higher levels following the release of a surprising earnings report.
CST Brands locations are in some of the best convenience store markets in the southern U.S., so I think there’s a lot more value that can be created for shareholders and convenience store shoppers.
I believe many investors have given up on Couche Tard because of the flat trajectory its shares have been on. The recent Holiday acquisition resulted in a nice rally in shares, but the gains were surrendered in a hurry over the next few trading days. What happened? Not much. Although the acquisition warranted a sustained rally, the general public quickly shrugged it off.
There are many long-term opportunities for Couche Tard to continue to grow, including the sale of marijuana, Asian expansion, and the opportunities to be had from the continued evolution of the convenience store. Although it appears that Couche Tard’s best days are behind it, the reality is, the company is just getting started since the consolidation opportunities are endless.
Stay smart. Stay hungry. Stay Foolish.
