Is Alimentation Couche-Tard a Buy at These Levels?

Considering the essential nature of its business, aggressive expansion, and reasonable valuation, I am bullish on Alimentation Couche-Tard.

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Alimentation Couche-Tard (TSX:ATD) is a convenience store operator that operates over 16,700 stores across 28 countries, with around 13,100 offering road transportation fuel. After delivering over 32% returns last year, ATD stock has continued its uptrend and is trading over 8% higher this year. Its solid quarterly performances, store network expansion through acquisitions, and healthy growth prospects have boosted its stock price. With the company trading close to its all-time high, let’s assess whether it offers any buying opportunities.

Let’s look at its performance in the recently reported second-quarter earnings of fiscal 2024 that ended on October 15.

ATD’s second-quarter earnings

In the second quarter of fiscal 2024, ATD generated $16.4 billion of revenue, a 2.7% decline from the previous year. The decline in the average fuel selling price and lower volume amid weaker demand and change in its business model weighed on its topline. Besides, the company’s same-store sales declined by 0.1% in the United States and 0.2% in Europe and other regions due to lower disposable income and weak cigarette sales. However, its gross profits rose 2.7% to $2.9 billion amid contributions from acquisitions, higher merchandise and service gross margins, and increased fuel gross margins.

Besides, the company has generated an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $1.5 billion, a 1.9% increase from the previous year. The contributions from acquisitions, organic growth from its stores, and favourable currency translations boosted its adjusted EBITDA. Its net income was $819.2 million, a 1.1% increase from the previous year’s quarter. The adjusted EPS stood at $0.82, in line with last year’s quarter.

Now, let’s look at its growth prospects.

ATD’s growth prospects

Meanwhile, ATD is progressing with its “10 For The Win,” a five-year strategy to grow its adjusted EBITDA from $5.8 billion in fiscal 2023 to $10 billion by 2028. Last month, it acquired European retail assets from TotalEnergies, which includes 2,175 sites across Germany, Belgium, the Netherlands, and Luxembourg. Besides, the company is continuing its other acquisitions and development of new stores, which could boost its financials in the coming quarters. Of the planned 500-store construction by 2028, it has completed the construction of 40 stores in the first two quarters of fiscal 2024.

With the highly fragmented United States retail market, ATD is well-positioned to strengthen its position, given its scale, optimized supply chain, and effective development of private-label brands. So, the company’s growth prospects look healthy.

Investors’ takeaway

In January, the Consumer Price Index in the United States rose 3.1%, higher than analysts’ projection of 2.9%. With inflation continuing to remain higher, the Federal Reserve will not rush for rate cuts. Analysts predict that global economic growth will slow down this year amid the impact of monetary tightening initiatives. So, I believe the equity markets will remain volatile in the near term.

Given the essential nature of its business and aggressive expansion, I believe ATD will continue to drive its financials despite the challenging environment. Besides, it has also raised its dividend 10 times over the last 10 years at a CAGR (compound annual growth rate) of 27%, which is encouraging. The company’s valuation also looks reasonable, with its NTM (next 12 months) price-to-earnings multiple at 18.7. Considering all these factors, I am bullish on ATD.

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 Rajiv Nanjapla 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.

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