The Canadian retail scene is full of potential value buys just in time for the second half. And while not every name has been as hot as the TSX Index, I think that value investors seeking a catch-up trade may wish to give some of the first half’s lagging retail plays another look. Indeed, the retail scene will be met with a new slate of challenges in the second half. Most notably, a lukewarm or even cooling Canadian economy may very well be in for a bit of sluggishness and continued inflation.
Either way, the consumer isn’t in an ideal spot going into the heat of summer. That said, they have shown a few glimmers of resilience here and there. In this piece, we’ll check in on a dirt-cheap Canadian retailer that I think may be in for a second half of results that are better than expected.
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Alimentation Couche-Tard stock: Looking cheaper by the day
Enter Quebec-based convenience retail firm Alimentation Couche-Tard (TSX:ATD), whose shares are down a hair over 20% from all-time highs. Yes, that’s officially a bear market!
And with more outlets reporting on the regulatory hurdles facing the company’s proposed takeover of 7-Eleven’s parent company, 7 & i Holdings, I think it’s about time that investors start looking ahead to Couche-Tard’s future in a scenario that could see the year-long pursuit end with the abandonment of the bid. Of course, time will tell (I think we’re close to reaching the conclusion in H2 2025) what happens next. If there’s too much resistance from regulators or 7 & i’s managers, perhaps it’s time to move on.
At this juncture, I wouldn’t get my hopes up for a done deal, especially since Seven & i’s managers don’t sound all too enthused about a potential takeover by a Canadian firm. With the odds of a successful deal seemingly sinking by the day, with the Wall Street Journal recently reporting Couche-Tard’s bid now looks less likely, I think the stock could be nearing a bottom at around $68 per share.
No deal means we, as shareholders, finally have permission to stop worrying about how fat of a premium the Quebec-based retailer might have to pay. And, perhaps more importantly, Couche-Tard’s management team will finally have time to consider seizing other, perhaps timelier value opportunities across the still-fragmented global convenience store market instead of divesting assets and continuing to put in homework on the proposed deal that may not end up seeing the light of day.
No deal? No problem!
At the end of the day, 7-Eleven may be a big swing, but it isn’t the only target. Personally, there may be more synergies to be had by using the extra cash to buy smaller, harder-hit convenience retailers that may welcome a Couche-Tard bid with open arms, rather than resistance and insistence on a higher figure.
In my view, it’s already served its time in the penalty box and could be released at some point in the second half. The stock appears inexpensive at the moment, still trading for less than 19 times trailing price to earnings (P/E) — not bad for a firm with a track record of creating huge synergies.
