Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

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Alimentation Couche-Tard Inc. (TSX:ATD) stock is an easily recognizable name among Canadians. The $75.22 billion market capitalization stock looked quite strong in the weeks leading up to its earnings. The multinational operator of convenience stores did find its way into the limelight this week.

However, it was for missing earnings expectations instead of exceeding them. The news has been accompanied by a 10% drop in shares from last month’s levels.

Does this make Alimentation Couche-Tard stock something investors should avoid or does it make a stronger case to buy the stock at a bargain? Today, I will explore Couche-Tard stock’s earnings report and whether there is a good case to buy the stock.

Alimentation Couche-Tard

Also commonly called Couche-Tard, ATD stock owns one of the world’s largest gas station and convenience store retail chains. It owns and operates more than 14,000 locations in over 20 countries worldwide. ATD stock has been one of the best performers on the TSX over the last decade. A major part of its strong performance is its business model.

Gas stations provide an essential service. The addition of convenience stores allows motorists to fuel themselves up while filling their gas tanks on their way. Its business model gives ATD stock a strong defensive appeal. Additionally, the company has executed a well-planned acquisition strategy to fuel its growth over the years.

Missed earnings expectations

Despite a defensive appeal and massive growth over the years, ATD stock is not immune to risks. The company’s third-quarter (Q3) earnings report for fiscal 2023 came in, and it was not as good as expected. The company’s revenue came in at US$19.6 billion, reflecting a 2.2% decline from the same period last year.

ATD stock also reported a 16% dip in net income, and its earnings per share were lower by US$0.08 compared to Q3 2022.

Brian Hannasch, the chief executive officer of Alimentation Couche-Tard, attributed the dip in its quarterly financials to cost-cutting measures by consumers. With rising inflation and higher borrowing costs forcing people to cut costs, many customers are also choosing lower-cost alternatives.

Despite missing its earnings, the company forecasts an annual growth of 7%. Alimentation Couche-Tard is also fully leveraging its appetite for growth, particularly in the European market. Last year, Couche-Tard acquired €3.1 billion of TotalEnergies’s European assets. The deal increased ATD stock’s presence in the European market by 80%.

Foolish takeaway

Considering its long-term growth potential and overall defensive appeal, it seems plausible that the stock can deliver on the promise of being a solid holding despite the ongoing volatility. Besides its growth potential, ATD stock also pays its shareholders quarterly dividends.

As of this writing, ATD stock trades for $77.77 and pays $0.70 per share. While it represents a meagre 0.9% dividend yield, the 19% payout ratio means the payouts are stable and can grow over the years. In my opinion, Alimentation Couche-Tard stock can be an excellent long-term holding.

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 Adam Othman 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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