Alimentation Couche-Tard (TSX:ATD) owns and operates around 16,950 convenience stores across 29 countries, with around 13,000 stores offering road transportation fuel. The company has underperformed the broader equity markets this year, with its stock price falling by 11.7%. Along with weak quarterly performances, its continued pursuit to acquire Seven & i Holdings appears to have weighed on its stock price. However, the company last month withdrew its US$46 billion bid to acquire the Japanese retailer, citing a lack of constructive engagement.
Since the withdrawal of its acquisition bid, the Laval-based retailer has witnessed a 2.4% increase in its stock price. Meanwhile, ATD stock is still trading at around a 17% discount compared to its 52-week high. So, let’s assess buying opportunities in the stock by examining its recently reported fourth-quarter performance of fiscal 2025 and growth rate prospects.
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ATD’s fourth-quarter performance
In the fourth quarter that ended on April 28, ATD reported revenue of US$16.3 billion, representing a 7.5% decline from the previous year. A 2% increase in its merchandise and service revenues was more than offset by a 10.2% decline in total road transportation fuel revenues and a 26.2% decline in other revenues, resulting in a decrease in its overall revenue. Despite lower revenue, its gross profits grew 5.4% primarily due to higher road transportation fuel gross margin.
Further, the convenience store operator reported an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of US$1.2 billion, representing a 5.9% increase from the previous year’s quarter. The increase in its gross profits more than offset increased operating expenses to drive its adjusted EBITDA. However, higher depreciation and amortization expenses, increased net financial expenses, and a higher income tax rate dragged its net income down by 3% to US$439.4 million. Meanwhile, removing its special items, its adjusted net income stood at US$441 million or US$0.46 per share, representing a 4.2% decline compared to its previous year’s quarter. Now, let’s look at its growth prospects.
ATD’s growth prospects
Meanwhile, the United States’ retail market is highly fragmented, with 60% of the retail stores operated by single-store owners. Considering its scale, optimized supply chain, and ability to develop private-label brands, ATD is well-equipped to expand its footprint. Further, the company is continuing to work on its “10 For The Win,” a five-year strategy that aims to post an adjusted EBITDA of US$10 billion in 2028. The adjusted EBITDA target represents a 68% increase from its 2025 levels.
Under this program, the company is strengthening its private label business by expanding its product range, entering new categories, and enhancing its production capacity. It is also expanding its business through acquisitions and has recently received clearance from the U.S. Federal Trade Commission to acquire GetGo Cafe + Market from Giant Eagle. Further, the company last month reinitiated its share repurchase program of US$4.2 billion. Under this program, the company will repurchase 10% of its outstanding shares over the next 12 months, thereby enhancing shareholders’ returns. Therefore, I believe ATD’s growth prospects look healthy.
Investors’ takeaway
The decline in ATD’s stock price has dragged its valuation down, with the company currently trading at NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples of 0.6 and 17.6, respectively. The company also offers a quarterly dividend, with its forward yield standing at 1.1% as of the August 8 closing price. Considering all these factors, I believe ATD offers excellent buying opportunities for long-term investors, despite the near-term volatility.
