Opinions
Jeff Parent B. Eng. FCSI CIM
Alimentation Couche-Tard
ATD-T
WEAK BUY
Nov 22, 2024
Stock price when the opinion was issued
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Seven & I negotiations are a big overhang. If deal goes through, anti-competition reviews will be required. Plus, would likely need to issue equity to fund it. Integration risk. To conserve cash, company's stopped buying back stock until this gets resolved. US operations are seeing softer traffic, with lower-income consumers spending less.
Low-growth area, so they've grown by acquisition. But now that they're so big, there's nothing left for them to buy. Trades at a discount, but lots of uncertainty on the name.
One of the fantastic Canadian compounders over time. But it will also go through periods where it can go sideways. High rate of return core business, and they're going to take FCF and possibly leverage and get even more of these businesses around the world. Seven & I deal would be great for synergies; if not, also great because they'd just buy their stock back.
Market doesn't know what to do because of all the uncertainty. Consolidating at a long-term moving average. Relatively inexpensive to historical levels. Waiting for the catalyst, but the catalyst isn't happening now. Mild consumer recession in US depending on income level, so its numbers are a bit weak right now. It'll get through this in 1-2 years, still one of his core Canadian holdings.
Japanese are not easy to negotiate with, and it's not to say that they won't come back and try again. Not a management deficiency that the deal wasn't completed. ATD is great at integrating. If they were able to get the deal done, he'd likely be back in the stock. No catalyst in the near term for him to buy; another deal would be a catalyst. In the meantime, doing a great job operating the business.
He's just a bit cautious in general about the consumer as a group relative to the rest of the market. He owns DOL and Loblaw, but that's it.
Premium contentThe bears won on July 11 when ATD suddenly called off the $46 billion deal. Days later, the company revived its share buyback program to the tune of $7.1 billion. Shares bounced back. I was in the bear camp and now see ATD as a stock to enter now before it sets its sight on another take-out target. True, the U.S.'s rising June CPI print raises legitimate concern about the state of the U.S. consumer looking forward. Forbes reported a 4.3% sales decline YOY last February in American convenience stores.
The proposed acquisition may have been a bit aggressive. May have felt a big acquisition was needed to move the needle. Very well run. May not be a lot of big purchases left in the space unless you overpay or take on a lot of debt. Without acquisitions and integration, may not be that much room for earnings growth.
We would be comfortable buying ATD at 18X earnings today, considering its solid long-term history and good outlook for continued growth.
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Stock price actually incorporates all the news. Stock hit a peak earlier in February; since then, trading right around $78 plus or minus $5. This consolidation could go on for a long time. Before you can ID the next trend, you have to wait for it to break out -- below $73 or above $85.
You can buy this now for diversification, but it won't be anything exciting. Keep an eye on that lower level. If it dropped below $70, then $60 or below is quite possible. You can discount the news as not important. Stock's been almost a double over the past 2 years.