Opinions
Brooke Thackray
Alimentation Couche-Tard (B)
ATD.B-T
WAIT
Dec 19, 2017
Stock price when the opinion was issued
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Very strong business - founder led & owned. Exception creator of wealth the past ~20 years. Has owned shares since 2014. Very good consolidator of convenience stores. High quality capital allocation skills. Recent 7-Eleven M&A is interesting, but depends on the final price that is settled on. Would recommend holding and/or buying.
EPS of 68c matched estimates; sales of $20.90B missed estimates of $21.21B. EBITDA of $1.64B beat estimates by 3%. Supply-chain optimization could let Couche-Tard maintain fuel profitability across its key markets for the rest of the fiscal year. US fuel margins declined sequentially (down 3.9%), but increased 2.5% compared with last year, an inflection point for the metric. If the company can keep this cadence of growth for 4Q, it's likely that US fuel margins may remain around mid-40 cents per gallon for the year. Canada might remain in the low-teen cents and high-single digits in Europe. Better control management allowed US inside-the-store margins to expand. As for M&A, recent acquisitions seem to remain on track, with the company reiterating its ambition for a friendly merger with Seven Eleven now that the possibility of a management buyout is gone. The stock is up, but this is likely more due to ongoing discussions with Seven Eleven rather than the quarter. But we are comfortable with the results.
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From a seasonal perspective, it’s very difficult to do an analysis on a stock like this that had this rapid growth. It has consolidated in the last 2 years, before that in 2015 we saw a ramp up that was fantastic, but right now we’re at the top of the range and it looks like we might be turning down at this point. He would actually be waiting on this one and wait for a pull back, perhaps at level of about $50. That’s a long way down, but if it does get there that would be a good entry point.