Why Couche-Tard (TSX:ATD.B) Stock Is up 22% This Year

Alimentation Couche-Tard (TSX:ATD.A)(TSX:ATD.B) is one of my favourite rebound stocks for 2021.

| More on:
gas station, convenience store, gas pumps

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Alimentation Couche-Tard (TSX:ATD.A)(TSX:ATD.B) is one of my favourite rebound stocks for 2021. The company’s convenience stores and gas stations across the world are at the forefront of the reopening. The company’s top line should reflect the fact that people are traveling and consuming again. That’s precisely what happened this week. 

Couche-Tard announced fourth-quarter results yesterday that came in higher than expected. Expectations of such outperformance have already added 22% to the company’s value since January 2021. Here’s a closer look at Couche-Tard’s near-term performance and valuation. 

Rebound stock

Couche-Tard operates a network of 15,000 convenience stores and gas stations across the world. Their footprint stretches from Mexico to Indonesia. However, their locations are usually optimized for office commuters and domestic travelers. That model put them in a precarious position last year when the economy was suspended. 

Now that restrictions are easing, Couche-Tard is witnessing a rebound in food, beverage, and fuel sales. Same-store fuel volume increased 5.4% in the U.S., 3.6% in Europe, and 4.9% in Canada during this recent quarter. That’s despite the fact that Canada and Europe aren’t fully reopened yet. 

The impact of pent-up demand is also being reflected in other ways. Couche-Tard saw a 0.9% bump in return on capital employed to 15.9%. Meanwhile, record-low interest rates allowed the company to refinance its debt and lower its leverage ratio from 1.54 to 1.32. 

Better performance, higher sales, and lower debt has encouraged the management team to boost dividend payouts by 25%. The annual dividend is now 33.25¢ per share compared to 26.5¢ last year. 

Couche-Tard’s valuation

Couche-Tard stock is climbing, as investors gradually realize its potential. However, the stock is up just 22% since mid-January — not enough to price in its true value. 

The stock is trading at a price-to-earnings ratio of just 15.2. Also, the company is paying less than 10% of annual earnings in dividends, despite the recent bump. In other words, it’s got plenty of cash flow to justify a higher valuation. 

Management has been trying to unlock value by securing a mega acquisition deal. So far, they’ve had no luck, which is probably why they’ve been spending cash on repurchasing the company’s outstanding shares. In April, the team approved a program to 32,056,988 Class B Subordinate Voting Shares, representing 4% of all outstanding shares. 

This buyback program makes it clear that Couche-Tard stock is an undervalued, overlooked dividend opportunity. 

Bottom line

Alimentation Couche-Tard stock has been frustratingly rangebound. In fact, the stock has barely moved since 2019. The fact that it offers a paltry dividend doesn’t help much either.

However, there are some catalysts that could unlock value in the months or years ahead. For one, the economy is reopening and travel is resuming. That’s already being reflected on Couche-Tard’s income statement, which is why the stock is steadily rising this week.

As the management team attempts another mega-merger or keeps repurchasing Couche-Tard stock, investors should finally see some upside. Keep an eye on this underappreciated value stock.

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.

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

More on Investing

calculate and analyze stock
Dividend Stocks

2 TSX Stocks to Buy With Dividends Yielding More Than 3%

Are you looking for some great income stocks that can provide growth, too? Here are two stellar TSX stocks to…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Dividend Lovers: 3 U.S. Stocks You Haven’t Heard About

Don't just stick to Canadian companies for a great dividend, consider these U.S. stocks you probably haven't even heard of.

Read more »

Happy diverse people together in the park
Investing

Canadians: 3 Top Growth Stocks That Could Make You Rich This Decade

Canadian investors should be eager to snatch up promising growth stocks like goeasy Ltd. (TSX:GSY) in the final weeks of…

Read more »

money cash dividends
Dividend Stocks

How to Invest $10,000 Over the Next 5 Years

Those looking to put $10,000 to work in this rather uncertain and volatile market may want to consider these three…

Read more »

Growing plant shoots on coins
Investing

3 High-Growth TSX Stocks That Could Soar

These three TSX growth stocks are trading ultra-cheap, giving them the potential to soar significantly when the market rebounds.

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: 2 Incredible Deals to Buy in August

Here are two TSX stocks investors can consider for their TFSA contribution this year.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

These 3 TSX Stocks Have Doubled Over 3 Years: Can They Do It Again?

Three TSX stocks whose share prices have doubled in three years are well-positioned to repeat history and reward investors with…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

Smart Buys: 2 Low-Profile Value Stocks With Strong Upside

Two low-profile value stocks with strong upside are smart buys if you’re looking for investments outside the energy sector.

Read more »