Alimentation Couche-Tard (TSX:ATD.B), one of North America’s top convenience store chains, has been showing some signs of recovery lately. The company seems to have fantastic long-term growth potential. Moreover, the robust financial outlook of Couche-Tard stock helps to make its stock appear undervalued relative to its peers.
Accordingly, I think Couche-Tard is well positioned to provide incredible value for long-term investors. Here’s why Couche-Tard could continue to soar through the end of the summer and the end of the year.
Couche-Tard stock has an attractive organic growth outlook
Desjardins Securities analyst Chris Li has raised his financial expectations for Couche-Tard stock. He feels that the stronger-than-expected growth opportunities coupled with a number of initiatives will prove beneficial for the company.
Mr. Li states that high valuations in the sector will likely prevent Couche-Tard from undertaking larger acquisitions. However, higher fuel margins, the ability to buy back shares, and aims for organic growth will help Couche-Tard achieve EPS growth of more than 10%.
The company announced its growth strategy to fulfill its 2018 goal of doubling its earnings to US$6.3 billion within 2023. This strategy includes cost optimization, localized pricing, store network improvements, promotions, improved assortment, and other initiatives.
This improved outlook has resulted in higher earnings expectations for Couche-Tard. This company is now expected to earn substantially higher earnings in 2022 and 2023, driving target price increases for Couche-Tard stock.
Pandemic reopening thesis remains strong
The pandemic resulted in a slowdown in driving activity, which affected Couche-Tard’s core gas station and convenience store business substantially. However, as we all continue to emerge from our cocoons, Couche-Tard stock should also show rapid improvement in the quarters to come.
Accordingly, I’m hopeful that Couche-Tard stock will be an outperformer in the near, medium, and long term. I think there’s a lot to like about the potential of this company for patient investors willing to wait out the short-term noise. This stock has been too cheap for too long, trading at a price-to-earnings ratio below 15 for a significant chunk of this year.
However, as investors begin to see the growth potential Couche-Tard stock provides, I expect some sort of valuation multiple expansion to take this stock toward its longer-term mean. The company’s valuation multiple has recently expanded toward 17 times earnings recently, indicating this shift is already on.
Couche-Tard stock is one long-term investors will want to keep an eye on. Indeed, this company’s growth prospects remain robust. Additionally, I view Couche-Tard stock as one of the most undervalued opportunities in the market today.
Long-term investors seeking growth at a reasonable price can’t go wrong with this name. It’s a long-term holding trading at a valuation that doesn’t make sense, leading me to believe there’s tonnes of room for capital appreciation on the horizon.
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 Chris MacDonald has no position in any stocks mentioned in this article. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC.