A Top Stock for 2019

Alimentation Couche-Tard Inc. (TSX:ATD.B) continues to deliver top notch results, with strong returns and cash flow growth setting it up for 2019 outperformance.

Alimentation Couche-Tard Inc.’s (TSX:ATD.B) stock is one of the few stocks on the TSX Index that are hitting all-time highs.

A reflection of the stellar results that the company has been posting, for sure, but also a reflection of changing investor sentiment.

A change that has meant that stable, predictable, defensive stocks have been in high demand.

A look at the company’s recent results, its outlook going forward, and its valuation, all point us to the same conclusion.

Alimentation Couche-Tard is a safe bet for 2019.

Admittedly, I am not one to necessarily enjoy buying stocks when they are trading at all-time highs.

But my investment thesis is predicated on the fact that this stock will be a steady performer that gives investors a small dividend, a predictable revenue stream, ample cash flows, and top notch profitability.

And downside protection as well as upside potential.

With a global network of 10,000 stores globally, the company has a history of profitably growing, both organically and through acquisitions.

The company’s debt load rose recently as a result of the company’s continued aggressive acquisition strategy, which has seen three transformative acquisitions in the last three years, with the $1.7 billion acquisition of 279 Esso brand gas stations being one of the latest.

Strong cash flows is one of the key characteristics of the company’s business model, as demonstrated by the company’s free cash flow generation (excluding acquisitions) of almost $3 billion in the last three years, its 8.6% five-year compound annual growth rate in operating cash flow, and a respectable free cash flow margin of over 2%.

So although the debt to total capitalization ratio remains high, it’s coming down and now stands at 48% (versus 54% earlier this year), and the company’s strong cash flow generation can easily support this.

The latest quarter, the second quarter of fiscal 2019, shows continued strength in same-store sales and traffic, continued margin improvements, and continued strong cash flow generation.

Same-store merchandise sales increased 4.4% in the U.S., 4.6% in Europe, and 5.1% in Canada.

EBITDA margins are expected to ramp up as the company continues to achieve the expected synergies related to its CST acquisition.

As at October 14, 2018, the annual synergies run rate was $200 million, which will flow through to expenses and margins in future quarters. The total synergy target of $215 million is but breaths away and will be accomplished.

Return on equity was a stellar 24% and return on capital was an impressive 12.1%.

Going forward, we can expect continued synergies from the company’s recent acquisitions, as well as deleveraging of the balance sheet, and continued growth both organically and via acquisitions, with the company’s target being to double the company once again.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in any of the stocks mentioned. Alimentation Couche-Tard is a recommendation of Stock Advisor Canada.

More on Top TSX Stocks

gas station, car, and 24-hour store
Stocks for Beginners

Should You Buy Alimentation Couche-Tard Stock?

The decision to buy Alimentation Couche-Tard stock isn’t as easy as it once was. Here’s a look at the case…

Read more »

edit Woman in skates works on laptop
Stocks for Beginners

3 Defensive TSX Stocks for Lower-Risk Investors

Looking for some of the best defensive TSX stocks to buy? Here's a trio of options that will appeal to…

Read more »

Index funds
Tech Stocks

Constellation Software Stock: Buy, Sell, or Hold?

Unveiling the Code: Should you Buy, Hold, or Sell Constellation Software (TSX:CSU) stock at current levels?

Read more »

Hourglass projecting a dollar sign as shadow
Top TSX Stocks

Just Released: 5 Top Stocks to Buy in March 2024 [PREMIUM PICKS]

Forget the hype. The best opportunity is in a sector the market is ignoring.

Read more »

TFSA and coins
Top TSX Stocks

5 Canadian Stocks to Buy and Hold Forever in Your TFSA 

Are you planning your TFSA portfolio for 2024? Here are a few stocks you can buy at the dip and…

Read more »

question marks written reminders tickets
Dividend Stocks

Better Buy: Loblaw Companies or Metro Stock?

Loblaw Companies (TSX:L) stock is riding on recent momentum. Meanwhile, Metro (TSX:MRU) is executing for future earnings growth.

Read more »

Redwood trees stretch up to the sunlight.
Tech Stocks

These 3 Magnificent Stocks Keep Driving Higher

Constellation Software, Dollarama and another TSX stock have consistently generated positive investment returns. Here’s why they belong in your retirement…

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Dividend Stocks

Got $5,000? These 2 Growth Stocks Are Smart Buys

Kinaxis Inc (TSX:KXS) is a Canadian growth stock worth considering.

Read more »