Alimentation Couche Tard Inc. (TSX—ATD), a global leader in convenience and fuel retail, continues to grow through acquisitions.
In fiscal 2022 (ended April 24), the company acquired over 90 company-operated and dealer-operated stores primarily in the U.S. And earlier in the year, it agreed to acquire 79 company-operated convenience retail and fuel locations, 147 dealer locations and a fuel terminal in Atlantic Canada. This acquisition is expected to close in the first half of this fiscal year.
Couche-Tard is operating in 24 countries and territories, with more than 14,000 stores, of which about 10,700 offer road transportation fuel. It is one of the largest independent convenience store operators in the U.S. and it is a leader in the convenience store industry and road transportation fuel retail in Canada, Scandinavia, the Baltics, as well as in Ireland.
Improving profits for both fuel and merchandise
For the year ended April 24, 2022, Couche Tard made an adjusted $2.8 billion (all figures in U.S. dollars unless otherwise noted), or $2.60 a share, compared with $2.7 billion, or $2.45 a share, in the same period of 2021. Results were driven by same-store and margin improvements at both the fuel and merchandise segments.
Couche Tard’s solid financial performance has let it return capital to shareholders. In fiscal 2022, the company declared dividends of C41.75 cents a share, an increase of 25.6 per cent from C33.25 cents in fiscal 2021. It also bought back $1.9 billion worth of its shares in fiscal 2022. This leads to fewer shares outstanding, thereby boosting earnings per share.
Earnings slow down next year but outlook remains positive
In fiscal 2023, earnings per share will likely pull back to about $2.54, as operating, selling, administrative and general expenses are expected to outpace gross profit growth. That’s partly because the company has had to deal with labour shortages and inflationary pressures.
The longer term outlook, however, is positive as Couche-Tard remains committed to doubling its earnings over the five-year period from 2019 to 2024. The company plans to do so by refining its fresh food program, expanding the flexibility of its supply chain, growing its electrical vehicle offerings and pursuing acquisition opportunities.
Couche Tard should earn C$3.28 a share in fiscal 2023. The stock trades at a reasonable 15.8 times that estimate. It also pays an annual dividend of C$0.44 a share, which yields 0.9 per cent.
Alimentation Couche Tard is a buy primarily for growth.
This is an edited version of an article that was originally published for subscribers in the July 15, 2022 issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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The Investment Reporter •8/30/22 •