Shares of Alimentation Couche-Tard (TSX:ATD) could be in for a bit of a comeback year in 2025 as we gain further clarity over what’s to become of the potential merger with the great 7-Eleven. Undoubtedly, there has been quite a lot of pushback that could prevent a deal from being struck. Either way, there’s more to the Circle K owner than just an outstanding merger. The stock had a “lost year” of sorts in 2024, with shares going nowhere higher and correcting off their all-time highs. Indeed, macro headwinds have weighed quite a bit on same-store merchandise sales.
Though the new year is a fresh slate, some investors may be inclined to see the same problems bringing about a further reset in the valuation. Indeed, shares of the name look relatively cheap at 19.85 times trailing price to earnings (P/E). But make no mistake, this is a growth multiple. And Couche-Tard will need to accelerate its sales in 2025 to avoid a further contraction in its valuation.
Though there are pathways to growth that extend beyond merger and acquisition (M&A), I think investors will need to take a longer-term view of the name as it navigates its turbulent patch after a few years of smooth gains.
As inflation approaches the target of the Bank of Canada, perhaps more Canadians will value convenience over the absolute lowest prices. Though it could take some time before more shoppers shift away from discount retailers (think dollar stores and dirt-cheap grocers) and back to convenience retailers, I think that most of the headwinds and growth woes are already baked into the stock.
2025 could be a big year for Couche
If a 7-Eleven deal finally goes through (I think it would be a massive win for shareholders of both companies), we need to hear more about how such a deal fits into the long-term game plan. Indeed, is Couche-Tard looking to drive synergies over the first few years, or is there some sort of master plan that could drive shareholder value for years and decades down the road?
Indeed, 7-Eleven is a behemoth that could keep Couche busy for most of the next decade. Personally, I think 2025 will be the year Couche-Tard successfully takes over 7-Eleven, though it may have to sweeten the pot again to court management and shareholders, some of whom may be against such a deal from happening.
In the meantime, I’d expect Circle K to continue expanding its impressive loyalty program while offering great deals to entice shoppers back into stores. Indeed, driving foot traffic through value is not just for fast-food firms; as the scars of past inflation persist, it’s for just about any firm in the retail scene. Couche recognizes this.
Bottom line
Additionally, look for Couche-Tard to ramp up with its new store openings, with around 500 new locations to open shop by 2028. These expansion efforts should jolt growth, even if a 7-Eleven doesn’t come to be. With a severely depressed high-teens P/E multiple and many potential growth drivers that can keep the double-digit percentage sales growth days alive, I’d not back away from ATD stock’s latest correction without picking up at least a few shares. Indeed, there’s a lot of financial wiggle room to go for growth in 2025. I couldn’t be more excited for the firm in this new year. There’s much to look forward to!
