Alimentation Couche-Tard (TSX:ATD) has been among the top-performing stocks on the TSX in the last two decades. After adjusting for dividends, the top TSX stock has returned 540% to shareholders in the last 10 years and is up a staggering 4,130% since January 2004.
Valued at $75 billion by market cap, ATD is now among the largest companies in Canada. Let’s see if you should buy Alimentation Couche-Tard at its current multiples.
The bull case for Couche-Tard stock
Alimentation Couche-Tard is one of the largest convenience store companies globally. It owns and operates a portfolio of brands, including Couche-Tard, Ingo, and Circle K. With a presence in 29 countries, ATD has gained traction in Canada, the U.S., Europe, and other international markets.
With a coast-to-coast presence in Canada, ATD’s convenience stores are located in 47 states in the U.S., and it also enjoys a leading market share in several European markets.
It provides convenience products including food and beverages, in addition to mobility services as well as fuel and charging solutions for electric vehicles.
ATD operates 14,400 stores, serving 8.5 million customers each day. The company reported revenue of $71.85 billion in fiscal 2023 (ended in April), up from $54 billion in fiscal 2020. A key driver of ATD’s stock price is its earnings growth, which increased by 15.5% annually in the last five years.
In the fiscal second quarter (Q2) of 2024, ATD reported net earnings of $819.2 million, or $0.85 per share, compared to earnings of $810.4 million, or $0.79 per share, in the year-ago period.
ATD is a company that is fairly recession resistant, allowing it to enjoy stable cash flows across market cycles. Despite headwinds such as inflation and rising interest rates, ATD has managed to grow its revenue and earnings consistently.
In recent months, it has focused on expanding the rollout of the Inner Circle membership program, which is now available in seven U.S. business units covering 3,000 locations and 2.7 million members. This membership program should result in higher customer engagement and retention rates for ATD over time.
A focus on acquisitions
Last November, ATD closed the acquisition of 112 MAPCO sites, allowing it to gain momentum in key markets such as Alabama, Kentucky, Georgia, Tennessee, and Mississippi.
Last week, ATD completed the acquisition of certain European retail assets from TotalEnergies. It includes the 100% acquisition of TotalEnergies’ retail assets in Germany and the Netherlands as well as a 60% controlling interest in Belgium and Luxembourg.
The acquisition allows ATD to enter four new countries in Europe, significantly expanding its reach in the continent.
Further, Alimentation Couche-Tard aims to build 500 stores in the next five years, and this organic growth should help drive earnings and cash flows higher going forward.
Is ATD stock undervalued?
Despite its outsized gains, ATD stock is priced at 17.1 times forward earnings, which is not too high. Moreover, analysts expect ATD’s earnings to rise by 10.2% annually in the next five years, which should support dividend hikes.
ATD pays shareholders an annual dividend of $0.60 per share, translating to a forward yield of 0.8%. These payouts have risen at an annual rate of 25% in the last 10 years.
Analysts remain bullish on ATD stock and expect it to surge 10% in the next 12 months.
