Alimentation Couche-Tard (TSX:ATD.B): Expect a Windfall in 2021

Alimentation Couche Tard (TSX:ATD.B)(TSX:ATD.A) stock is undervalued and the perfect target for both growth and income-seeking investors in 2021.

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

Alimentation Couche-Tard (TSX:ATD.B)(TSX:ATD.A) has been losing market value even as the rest of the stock market surges. The convenience store giant has been overlooked by investors as they focus on tech and healthcare stocks. However, Couche-Tard stock could be on the verge of unlocking value for shareholders this year. 

If you’re an investor or have Couche-Tard stock on your watch list, here’s what you need to know. 

Growth strategy

Couche-Tard has grown from a single store in 1980 to over 15,000 stores spread across the world today. That growth has been driven by the management team’s savvy use of capital over time. 

The company’s cash flows have been aggressively deployed into acquisitions to expand the company’s footprint. Over the past 40 years, the company has acquired over 66 firms – an average rate of 1.65 every year. This strategy has been so successful that Couche-Tard stock is up 90,045% since 1999. 

However, this growth strategy has faced some bottlenecks in recent years. 

Speed bumps in deal making

Last year, Couche-Tard attempted the takeover of Australian gas station and convenience store chain Caltex. The deal was worth an estimated $7.1 billion at the time. However, the pandemic sent this deal off the rails.

This year, Couche-Tard management set their sights on a much bigger deal — a takeover of French grocery chain Carrefour. This deal was worth $25 billion — roughly 58% of the company’s market value.  However, this deal was blocked by the French government and has now been abandoned. 

The company now has $3.5 billion in cash on its books and the ability to borrow several times more to close a similar deal. A savvy mega-deal, of course, would unlock value for shareholders. But if the company continues to struggle in its quest for an acquisition, it may have to hand the cash back to shareholders. 

The dividend payout ratio is just 8% at the moment, so there’s plenty of room for a special dividend from the company. Either way, deal or no deal, shareholders should expect a windfall from Couche-Tard stock in 2021. 

Couche-Tard stock valuation

Despite its robust cash flow and balance sheet, investors have overlooked the stock. Couche-Tard is trading for just 15.5 times earnings per share. It’s also trading at an 8% discount to sales per share and roughly 10 times operating cash flow. 

The stock could also be spurred on by the economic recovery and resumption in travel in the second-half of this year. Higher sales and better foot traffic should be reflected in the company’s bottom line eventually.

By any measure, Couche-Tard stock is undervalued and underappreciated. That makes it a perfect fit for value-oriented contrarian investors. 

Bottom line

Alimentation Couche-Tard has delivered a fortune for investors over several decades. Its growth strategy hinges on acquisitions, but the team has struggled to complete recent mega-deals. With cash piling up, the company could consider a dividend hike. 

Couche-Tard stock is undervalued and the perfect target for both growth and income-seeking investors in 2021. 

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 Vishesh Raisinghani owns shares of ALIMENTATION COUCHE-TARD INC. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC.

More on Investing

Target. Stand out from the crowd

2 Canadian Stocks I’m Buying Lots of This Year

I’m looking to snatch up exciting Canadian stocks like VieMed Healthcare Inc. (TSX:VMD) throughout 2023.

Read more »

grow money, wealth build
Dividend Stocks

Got $3,000? 3 TSX Growth Stocks to Buy in January 2023

Top TSX growth stocks that look appealing for 2023.

Read more »

woman data analyze
Dividend Stocks

Need Passive Income? Turn $15,000 Into $851 Annually

This passive-income stock is already climbing higher, up 16% in the last three months! Yet it's still valuable, so you…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Retirees: 3 Reliable Canadian Dividend Stocks to Buy Now for Passive Income

Top TSX dividend stocks now appear oversold.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.

2 TSX Stocks Safer for Investing in a Recession

These consumer companies will likely beat the broader market averages amid a recession. These stocks offer stability, income, and consistent…

Read more »

Dividend Stocks

For $100 in Passive Income Each Month, Buy 1,500 Shares of This REIT

REITs such as Northwest Healthcare can enable investors create a passive-income stream as well as benefit from capital gains.

Read more »

A colourful firework display
Dividend Stocks

2 Canadian Growth Stocks (With Dividends) to Start 2023 With a Bang

Here are two of the best dividend-paying Canadian growth stocks you can invest in at the start of 2023 and…

Read more »

sale discount best price
Dividend Stocks

4 Insanely Cheap Canadian Stocks to Buy for Passive Income

The recent bear market has created some incredible bargains, especially for those looking for passive income. Here are four cheap…

Read more »