Shares of Alimentation Couche-Tard (TSX:ATD) have really been weighed down for well over a year now. Looking back, I’m sure many shareholders would rather the convenience retail giant steer away from the pursuit of 7-Eleven’s parent company. With regulatory hurdles and more unknowns surrounding the proposed deal, it’s quite an uncertain time to be a shareholder, especially since all other merger and acquisition (M&A) activity seems to have stalled as we all await what’s to happen between the Circle K owner and 7 and i Holdings — the legendary Japanese firm standing behind 7-Eleven.
Personally, I think Couche-Tard will do well for investors over the long haul, regardless of what ends up happening. Though some pundits think there are low odds of a successful “friendly” deal, I’m inclined to believe Couche-Tard won’t walk away completely empty-handed, whether that means acquiring some of the 7-Eleven stores if a full deal isn’t possible or something else entirely. In any case, Couche-Tard is an excellent company that’s wrongfully plunged into a nearly 20% implosion.
Couche Tard’s still in growth mode: Shares are discounted 20%
A Canadian and U.S. recession could weigh heavily as consumers look to put their wallets away, perhaps at the expense of convenience. Either way, I think near-term economic headwinds are clouding the huge long-term growth opportunity that the company is likely to succeed with. Indeed, Couche-Tard is in expansion mode, with hundreds of new stores to be opened by 2028.
Indeed, that will give a shot in the arm to sales growth as the firm looks to hit and maybe even exceed its longer-term growth targets. If a 7-Eleven deal does happen in spite of recent pushback, regulatory hurdles, and outside interest, perhaps investors are discounting the synergies to be had. Of course, the more the firm must sweeten the pot (higher takeover price), the less of a value-creative effect the deal will ultimately have.
Recently, 7-Eleven’s owner stated that Couche-Tard may be underestimating antitrust hurdles standing in its way. Indeed, time will tell if regulatory approval is received. Until then, ATD stock could be stuck in a rut. However, the firm could appease regulators by selling a considerable amount of U.S. stores if the 7 and i deal does go through. In any case, such an agreement may help the firm overcome regulatory hurdles thrown its way.
Investors with a five-year time horizon may wish to punch their ticket, though, as the name looks like a fantastic bet, whether or not such a deal is blocked.
Is it too far-fetched to think Couche-Tard can win over the trust of anti-trust regulators? We’ll just have to wait and see.
Don’t give up on ATD stock
At the end of the day, the growth-by-acquisition story is far from over. And while the past year may have seen a lack of drivers (M&A announcements that move the needle on shares of ATD), I do think that the company’s impressive financial strength and ability to scoop up deals in the face of industry turbulence make ATD stock a consumer staple that’s to be bought whenever shares go a year or more of trailing the market.
At the time of this writing, Couche-Tard stock is going for 15.9 times forward price to earnings (P/E). And while shares have a considerable amount of negative momentum riding behind them, I think shares could be a great defensive growth pick-up to ride out what could be a big down year for the TSX Index and S&P 500.
