Better Buy: Couche-Tard Stock or Metro Stock?

Retail TSX stocks such as Metro remain compelling bets amid a challenging macro environment in 2023.

| More on:
consider the options

Image source: Getty Images

The macro environment is quite volatile, and several investors are also bracing for a recession in the near term. Given headwinds such as rising interest rates and inflation, it makes sense to invest in recession-resistant companies such as Alimentation Couche-Tard (TSX:ATD) and Metro (TSX:MRU) right now.

While ATD stock has returned 600% to shareholders in the past 10 years, Metro stock is up 300% since November 2013 after adjusting for dividends. Both these blue-chip Canadian stocks have crushed the broader markets, as the TSX index has surged just 107% in the past decade.

Let’s see which TSX stock between ATD and Metro is a better buy right now.

Is ATD stock a good stock to buy today?

Alimentation Couche-Tard is among the largest retail companies in Canada. Valued at $76 billion by market cap, ATD operates brands including Couche-Tard, Ingo, and Circle K. It offers convenience products, including hot and cold beverages and mobility services such as transportation fuel and charging solutions for EVs, or electric vehicles.

ATD operates in 25 countries and ended the recent quarter with more than 14,400 stores, allowing it to generate $70.5 billion in sales in the last 12 months. It serves 8.5 million customers and sells 35 million gallons of fuel daily.

Despite its massive size, ATD has increased net earnings by 18.4% annually to $3.09 billion in the last 10 years. In this period, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) has risen by 15.4%, while capital expenditures have grown almost 13% annually. Moreover, a highly fragmented market in the U.S. provides ATD with consolidation opportunities in the future.

Priced at 18.9 times forward earnings, ATD stock is quite cheap despite its market-thumping gains. Investors expect adjusted earnings to rise by 9% annually in the next five years, showcasing its pricing power. The stock also trades at a discount of 10% to consensus price target estimates.

Is Metro stock undervalued?

Valued at $17 billion by market cap, Metro continues to perform well, fueled by robust same-store sales and its focus on operating leverage. As food inflation persists, Metro has managed to increase market share and tonnage growth due to its discount food stores.

Metro’s loyalty program, MOI, was launched in the fiscal third quarter (Q3) of 2023 (ended in June), which should result in recurring sales and predictable cash flows over time. The loyalty program should also result in strong customer retention rates while unlocking another revenue stream for the retail giant. Metro emphasized that MOI will provide value to customers by offering multiple ways to earn and redeem points on food and pharmacy purchases in Quebec.

Analysts tracking MRU stock expect sales to increase by 9.3% to $20.64 billion in fiscal 2023 and by 2.5% to $21.5 billion in fiscal 2024. Its adjusted earnings are forecast to rise by 10.3% annually in the next five years.

Priced at 17 times forward earnings, MRU stock trades at a discount of 8% to consensus analyst estimates. It also offers shareholders a dividend yield of 1.2%.

The Foolish takeaway

Both MRU and ATD could be part of your portfolio, given their reasonable valuation, widening cash flows, and predictable earnings.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A golden egg in a nest
Dividend Stocks

RRSP Investors: 2 Dividend Stocks to Build Your Retirement Nest Egg

These industry-leading stocks can be an excellent part of your portfolio to align with your retirement plan for a sizeable…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

If You Like Dividends, You Should Love These 3 Stocks

Canadian investors can consider buying high dividend TSX stocks such as Enbridge to create a passive-income stream for life.

Read more »

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

Pensioners: 3 Cheap TSX Dividend Stocks to Buy Today for TFSA Passive Income

When dividend stocks are cheap, it is time for long-term investors to scoop up shares in their TFSAs and enjoy…

Read more »

Retirement plan
Dividend Stocks

TFSA: How to Invest for $250 in Monthly Retirement

Investors looking to establish monthly retirement income will want to invest in these two stellar stocks now.

Read more »

Dividend Stocks

Buy 92 Shares in This Stock for $1,699 in Passive Income in 2024

The market is changing, and that could mean big things for this discretionary stock as we enter the new year.

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: How to Prepare for Investing in 2024

2024 will be here before you know it, so make sure you're prepared with a TFSA, have the funds for…

Read more »

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

Beat the TSX With This Cash-gushing Dividend Stock

Sun Life Financial stock could outperform the TSX again. A recent 8% dividend raise highlights management's enthusiasm.

Read more »

protect, safe, trust
Dividend Stocks

Earn Passive Income With 3 Canadian Dividend Stocks Today

Here's how you can start exploring high-yield Canadian dividend stocks for favourably-taxed passive income.

Read more »