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This Canadian Growth Rock Star Is Poised to Make a Big Move to the Upside

As fellow Fool contributor Kay Ng pointed out, Alimentation Couche-Tard’s (TSX:ATD.B) management is likely to start wheeling and dealing again once its adjusted leverage ratio gradually falls closer to two (it’s at 2.86 today). As opportunities present themselves, I think it’s wise for management to keep its balance sheet levered up to capitalize on timely opportunities within the global c-store space as they come along.

Sure, keeping debt levels in check is essential, but if there exist time-sensitive opportunities that’ll result in more long-term value creation, there’s no shame in pulling on the leverage lever. I see two compelling growth opportunities that Couche-Tard may want to move to next.

First, activist shareholders have been pressuring Casey’s General Stores to explore initiatives that’d better reward shareholders. I think Couche-Tard should pounce at the opportunity to scoop up the c-store behemoth at what I believe would be a tremendous discount to its intrinsic value.

Now, a Casey’s scoop-up will probably cost Couche-Tard well over US$5 billion, and that’ll decrease the health of the balance sheet by a substantial amount such that the debt-to-equity ratio would swell above two. When you consider the fairly predictable nature of future cash flows and the opportunity to realize massive synergies, however, it’ll just be a matter of time before the bigger debt load is paid off.

Second, a potential Asian expansion presents an opportunity to get a massive bang per buck with its ridiculously high ROEs that’ll allow Couche-Tard stock to deliver high double-digit EPS growth consistently in spite of its large market cap. According to a forecast conducted by IGD Research, Vietnam and the Philippines are markets that are capable of 24.2% and 37.4% in c-store CAGR over the foreseeable future. That’s ridiculous growth that’s quite unfathomable for prospective investors, many of whom may think the growth has dried up due to the recent consolidation of Couche-Tard shares.

Moreover, Couche-Tard is well equipped to adapt to rapidly changing consumer trends, and as it better caters to customers like millennials (with fresh produce, meal options, etc.), I see an opportunity for Couche-Tard stock to make up for lost time as management gets ready to put its foot back on the growth pedal while driving same-store sales growth through the roof through various in-store product “innovations.”

Foolish takeaway

The growth isn’t gone — not even close.

The growth ceiling remains high, as there are a tonne of explosive growth opportunities within the space. With multiple potential catalysts on the horizon and plenty of gas left in the tank, I see Couche-Tard stock at $100 by the conclusion of 2019.

Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette owns shares of ALIMENTATION COUCHE-TARD INC. The Motley Fool owns shares of Casey's General Stores. Alimentation Couche-Tard is a recommendation of Stock Advisor Canada.

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