It’s hard to remember the last time shares of Alimentation Couche-Tard (TSX:ATD) were this untimely and oversold. The stock isn’t just being clawed down by the bear (a bear market is a 20% drop from peak to trough), but the rest of the market has been soaring in recent months. It’s like a slap in the face of investors who are overweight in the name! The relative underperformance of ATD shares has made it challenging to justify holding, especially in the face of increasing economic headwinds, further Trump tariff threats against the world, and perhaps even a Canadian recession.
Could a bottom be in sight?
The stock has been steadily declining for more than a year, and there seem to be few, if any, signs that shares are bottoming out after shedding over 20% from peak to trough. Furthermore, it’s virtually impossible to discuss Couche-Tard stock these days without first addressing the elephant in the room: the ongoing pursuit of acquiring 7 & i Holdings, the Japanese parent company of 7-Eleven.
If you’ve been keeping up with the bid, you’re probably not feeling too great about it, especially as the company faces some earnings growth pressure without much in the way of M&A activity in recent quarters. Lower fuel margins and a stressed consumer also haven’t done the stock any favours as the deal drags on. With same-store sales growth (SSG) numbers slightly in the red, you really can’t fault long-term investors for getting out today.
After all, there are so many other retail stocks out there that are “working” in this environment.
Heck, ditching shares of ATD for a broad market index fund certainly seems tempting right here. In any case, I think patience will be rewarded as the new management and its newly-appointed CEO, Alex Miller, who took the helm in September, look to lead what could be a deal of a lifetime.
It’s not going to be easy. It could be a lengthy, painful process. And there will be doubters along the way. But with Miller’s sights set on the long term, I do think investors should stay the course despite the lack of recent results. In my opinion, Couche-Tard has the right cards, as it keeps its foot to the pedal with its bid.
I believe a deal will ultimately be reached. But it’s tough to gauge what investors’ reactions will be.
In prior pieces, I highlighted that several analysts were expressing doubts about Couche’s odds of successfully taking over 7 & i Holdings. And while shareholders may feel bittersweet (or just bitter) about the proposed deal, even as management sounds as confident as ever in getting a deal done and the value it’ll add to the organization, one can’t help but think there’s a chance that the past year of hype and build-up will only to end with absolutely nothing. We’ll have to stay tuned and stay invested, as the stock continues its painful, drawn-out correction.
Despite more recent headlines suggesting a lower chance of a successful takeover, I’m inclined to believe that the odds of success will increase the longer the pursuit continues.
While the 7 & i Holdings deal doesn’t fit the typical mould of what Couche-Tard usually goes after, I do think that sellers on this latest dip will be proven wrong to doubt management. Negotiations are ongoing, and management has been willing to shuffle its cards around to improve the deal’s chances.
With a big bid in place and potentially scary economic headwinds on the horizon, perhaps the moment of truth will shortly be upon us. Just over a week ago, management said the deal “timeline will be shorter rather than longer.” That’s a significant development that makes ATD stock a timely buy in mid-July.
