Alimentation Couche-Tard (TSX:ATD.B) is a misunderstood stock that still isn’t getting the respect it deserves. The exceptional management team, led by Brian Hannasch, has the magic formula to drive earnings growth through the roof through acquisitions that are rich with synergies.
Despite the massive size of the company, the firm is still capable of posting double-digit growth numbers and hitting management’s target of doubling profits in five years — a tough feat for most other firms with market caps around $50 billion.
The convenience store kingpin had the urge to merge, but of late, the company has been rather quiet with regards to deals made, other than the recent sweetening of the pot to better its chances of scooping up Caltex Australia — a deal that would be a fine foundation in a new market for Couche-Tard.
While Couche-Tard has sweetened up the pot, don’t expect it to risk overpaying for any acquisition. The business of M&A comes with integration risks. While Couche-Tard has done a superb job of mitigating such risks, the company wants to ensure that a deal is well worth the effort and paying more will eat into the potential synergies.
Like in the case with the attempt to acquire Casey’s General Store many years ago, Couche-Tard may end up walking away from the deal altogether if it can’t land a price that creates substantial value for long-term shareholders. Even if Couche-Tard walks away from Caltex Australia, I still think there are better opportunities in the global c-store market.
Heck, it may be better for the stock over the intermediate term if Couche-Tard were to pursue many small-scale acquisitions, rather than looking to land its biggest acquisition to date. Couche-Tard’s scoop-up of CST Brands took a long time to digest, and the stock fell into a long-term consolidation channel, as the company integrated the big-league acquisition while doing a bit of “spring cleaning” its other c-stores.
Looking ahead, Couche-Tard will be striving to bolster its comps at its existing stores while going on the hunt for more M&A opportunities. Couche-Tard has a lot of dry powder, and the announcement of a big deal could send shares spiking overnight. The company is well on its way to doubling its net income by 2024, and I think the stock ought to sport a mid-20s P/E multiple given the low-risk growth to be had.
Today, Couche-Tard trades at just 18.5 times trailing earnings and 0.6 times sales, both of which are too cheap given the catalysts and the firm’s exceptional management. So, if you’re looking for something to buy with your next $6,000 in TFSA funds, look no further than Couche-Tard — a stock I plan to buy more of with my next TFSA contribution!
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