Shares of Alimentation Couche-Tard (TSX:ATD) have been feeling the pressure from the U.S. banking volatility in recent weeks. Despite having nothing to do with the failure of regional banks in Silicon Valley, nearly everything has been falling in sympathy. Indeed, it feels like the Great Financial Crisis all over again, but risks do seem contained, making broader market volatility less of a sign to run for the hills. And more of an opportunity for value hunters to get a bit more for their investment dollars.
Indeed, the failure of Silicon Valley Bank has hogged the headlines, causing many investors to hit the panic button. This news has spread through to the Canadian banks, causing some to ask if the Big Six banks are ready for another round in the ring with a violent Mr. Market. With a Canadian recession potentially months away, it’s hard to be remotely bullish on anything these days.
Couche-Tard stock: First big deal in a while
The haze of bearishness and unease has overshadowed Couche’s biggest acquisition in years. In case you missed it, Couche-Tard scooped up TotalEnergies gas stations in a deal worth $3.3 billion. The blockbuster move will add over 2,000 European stores to the Couche-Tard mix.
Indeed, Couche-Tard’s done remarkably well in Europe. Now, it’s ready to double down on the region, with its latest splash. Like most deals Couche-Tard makes, I believe the company scored a great deal in a geography, where the firm can really unlock synergies.
The deal has been in the making for quite a while. In prior pieces, I’ve noted it was just a matter of time before the firm made a multi-billion-dollar splash on the front of mergers and acquisitions. Now that it has, investors don’t seem all too enthused. And who can blame them with the shockwaves caused by banks south of the border?
Ultimately, I think U.S. banking risks won’t cause some sort of systematic issue. Further, the U.S. Federal Reserve may now have enough reason to hold off on its next rate hike to put investors at ease. Once the situation calms, I think Couche-Tard will be right back to hitting new highs. The TotalEnergies deal is a big one that could help the firm move the needle.
More deal making could in the cards
Though it’s a big splash at a time when valuations are modest, I don’t expect it’ll be the last deal. The company still has acquisitive power in the billions. And as recession winds strike, I wouldn’t at all be surprised if Couche-Tard makes up for lost time with another big deal or two this year.
In any case, don’t expect Couche-Tard to use up the rest of its liquidity just because it can. If it can’t get a great deal, it won’t act. It’s that simple. Like Warren Buffett, Couche-Tard has shown it’s more than willing to hang onto a large cash hoard until the next big value opportunity comes knocking.
Great deals don’t happen often. When they do, you need cash and credit to make a deal happen. Regardless of what markets do next, Couche-Tard stock looks like a steal that’s likely headed higher from here. At 16.1 times trailing price to earnings, Couche-Tard stock looks too cheap.
