Canadian investors shouldn’t fear the TSX Index just because it’s making new highs going into September, a month where trading volumes and, typically, volatility tend to increase. Indeed, there’s still a lot of value out there and underappreciated names that could be next in line for a relief rally of sorts.
In this piece, we’ll look at a relative value play that investors may wish to buy for the long term, even if it means heading into a more turbulent final four months of the year.
Alimentation Couche-Tard: The road ahead without 7-Eleven. Anything more than buybacks to get excited about?
Speaking of underappreciated, we have shares of Alimentation Couche-Tard (TSX:ATD), which have continued to trail the markets this year, now down over 11% year to date. The 7-Eleven pursuit took close to a year, and it went nowhere. With a share-buyback program in place and plenty of cash to spend, investors are left pondering what’s next. Unfortunately, with less clarity in the road ahead, it seems like investors are getting a tad impatient.
They’ve been following the 7 & i Holdings pursuit, and now that it’s fallen through, there hasn’t been much news from the Quebec-based retailer juggernaut regarding its path forward, especially as earnings face challenges in today’s tariff environment.
At $70 per share, I view ATD stock as an absolute steal at 17.3 times forward price-to-earnings (P/E). Until Couche-Tard inks its next deal or the next round of earnings come out, expect ATD stock to be a forgotten name that investors may be inclined to pare, either due to lack of performance or uncertainty as to the road forward without 7-Eleven.
Now, there’s no shortage of acquisition targets in the convenience retail and grocery store scene. As digital disruptors look to make same-day grocery delivery a thing, I believe that Couche-Tard may wish to pivot and make some sort of grocer deal so that it can bolster its supply chain. Indeed, the only thing better than same-day grocery delivery is having grocery delivery within 15 minutes.
The future of convenience?
Indeed, given Couche-Tard’s proximity to customers, I believe it has the potential to strengthen its partnership with food-delivery platforms, enabling them to better compete with giants in the grocery space. Who knows? The end of the 7-Eleven pursuit could be a good thing since it’ll allow Couche-Tard more to go after an elephant-sized deal in the grocery scene. Its Carrefour deal may have failed, but I have a feeling management isn’t going to give up on opportunities within the grocery scene.
Fresh food and other grocery items, I believe, are the future of convenience retail, as is removing friction from the checkout process. Perhaps delivery and frictionless checkouts at stores are the way of the future as fuel sales dwindle over the years.
Personally, I think Couche-Tard should ink a deal with a major grocer sooner rather than later because it’s going to take a lot of time to get up to speed with the grocery supply chain. The sooner, the better. Though Couche-Tard is bound to be an uneventful play in the meantime, I wouldn’t be surprised if management is busy considering its next big merger and acquisition moves behind the scenes.
In short, a deeper relationship with food delivery firms, a grocery acquisition, and continued AI-driven supply chain improvements could be key to achieving double-digit percentage earnings growth in the long haul. Of course, I’m looking way into the future, well into 2030 and beyond. But if you’ve got the time horizon, I’d pounce at the opportunity to pick up the name while it’s down.
In any case, I find the long-term trajectory very exciting as Couche-Tard acquires its way to growth and adaptation to the new age of convenience retail.
