Alimentation Couche-Tard (TSX:ATD) runs licensed convenience stores in countries across North America, Europe, and Asia. The company’s retail stores sell gas, tobacco products, and consumables like beer, candies, snacks, grocery items, fresh food offerings, and wine. Couch-Tard operates convenience store chains under Circle K, Ingo, Holiday, and Mac’s brands.
According to many analysts, this company’s stock is expected to offer significant returns relative to inflation in the years to come. Among convenience store stocks, investors can anticipate better returns with Couche-Tard relative to its peers for a number of reasons.
Here’s why I remain bullish on this retail name in this current macro environment.
This company is a growth gem
Against the backdrop of rising interest rates in 2023, Alimentation Couche-Tard saw a 29% rise in its adjusted earnings per share, or EPS, from the previous fiscal year. Furthermore, this company’s earnings per share growth has averaged roughly 22% over the past decade. Similar dividend-growth metrics have been seen, providing investors with excellent total returns.
The company’s EBITDA, a metric displaying its cash flow generated from operations, rose 19.8% year over year in 2023. Moreover, this stock has delivered more than 20% higher return on equity to its shareholders every year since 2009.
This information paints a clear idea that Couche-Tard has sufficient liquidity to fund continuous dividend payments and other capital investments to its investors. For fiscal year 2023, this company’s capital investment grew to 31% of its EBITDA.
The Alimentation Couche-Tard stock offers a dividend yield of 0.9%, which is not the most impressive. However, it is performing well even in the high-interest rate scenario. According to financial analysts, this is happening due to this company’s low cost of debt and the capacity to generate strong cash flow and earnings. Analysts think that investors will continue receiving better returns from capital appreciation than what they are expecting from dividends alone.
The company’s leverage ratio is about 1.5 times, which is also historically low. This also indicated that Couche-Tard could soon go ahead with a new acquisition to spur long-term growth.
Strong financial results boost interest in the stock
As per financial analysts, the second-quarter (Q2) results of Alimentation Couche-Tard for FY2023 were quite strong and reflected a future of substantial earnings.
According to its reports, Couche-Tard recorded an increase in net earnings of US$819.2 million in Q2 FY2023 from US$810.4 million in 2022. However, the company’s adjusted net earnings did see a slight drop from US$838 million in 2022 to US$792 million. Its normalized growth of expenses remained at 1.5%.
Furthermore, the company’s total merchandise and service revenue has increased to US$4.1 billion, which is 1% higher than last year. With these financial metrics, a school of analysts believes that investing in ATD stock could be a wise move for investors for their financial growth in 2024. With inflation getting under control, investors might return to consumer stocks, and ATD stock is one of the go-to options for 2024.
Bottom line
Alimentation Couche-Tard is among the best retail stocks long-term investors can consider in this current environment. From a fundamentals perspective, few companies come close to providing the sort of return on capital this company has historically provided over a long period of time. Thus, for long-term investors, this is a value stock to buy and hold.
