Alimentation Couche-Tard (B) (ATD.B.TO) Buy,…

Alimentation Couche-Tard (B) (ATD.B.TO)

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TOP PICK

The global space is so fragmented, a plus for ATD'B, as they acquire companies. They allocate capital well, like buying back shares after the 2008 crash. They have a global platform to seek deals. It's defensive. The valuation is attractive. (Analysts’ price target is $54.19)

PAST TOP PICK

(A Top Pick Aug 04/20, Up 11%) Consistent grower and outperformer of the TSX for 24 years. Now a big player in the US and Europe. Moving into Asia. Stepping up merchandising sophistication, which will drive organic growth and be reflected in a stock re-rating in the multiple. Good things in the pipeline. Another deal before year's end wouldn't surprise him. Continues to buy.

BUY ON WEAKNESS

A few years ago, he though the PE was stretched, but is better now and he's taking a close look at it. It suddenly jumped from $44 to $49. Very well-managed. They were put in the penalty box when they tried to buy Carrefour. They're planning to add fresher food in their stores. It's an economic recovery play. Buy under $45 though you could buy it at current levels.

WATCH

They gave the market a bit of a panic attack when they tried to move into more of a grocery format with a French acquisition. It knocked the shares down and it would have been an attractive time to buy it. There are still lots of assets around the world for them to buy. They paid down a lot of debt since. Now they are getting record fuel margins. He wants more clarity around the market before he would step in.

BUY

A large US fund threw a temper tantrum about the Carrefour deal and blew out the stock. He thought the deal would've been positive. Stock's recovered. Short-term headwind of gasoline margins. Very well run. Very strong financial position. Buy it here, hold for a couple of years, be satisfied with your return.

TOP PICK

Very capable acquirers. Underleveraged. Acquisitions are strategic, accretive, and synergistic. Expects one this year. Dialling up merchandising sophistication. Powerhouse compounder over time. Yield is 0.79%. (Analysts’ price target is $47.33)

BUY

Underperforming the TSX on a relative basis since last March. Has picked up. A great franchise. Will benefit from the reopening. Valuation is on the higher end. You can hold it longer-term. Note that it may not pick up in the recovery as quickly as financials or others.

PAST TOP PICK

(A Top Pick Dec 31/20, Down 4%) Now they are getting into more integrated businesses, more like Loblaws. The change was a bit of a surprise. Markets don't like surprises. He continues to own the stock.

BUY

They grow by acquisition and will continue to. He's not excited that they want to get into groceries, but he gives managers the benefit of the doubt. It's a very stable business. Travel will soon pick up and benefit ATD. He likes the stock long term and doesn't worry about their short term deals (or non deals, like Carrefour).

PAST TOP PICK

(A Top Pick Apr 09/20, Up 17%) He has owned it for a number of years. They are a good consolidator. It has been perking up a little in the last few weeks. There are probably some short term headwinds for them with comparisons to last year as a lot of stores were closed and traffic got diverted to dollar stores, convenience stores and corner stores. They had a windfall on gasoline margins. Oil prices fell swiftly but gas prices did not, as is usual. Their fuel margins will be a headwind for the next couple of quarters. He thinks they will get a strategic acquisition completed this year. They are buying back their own shares, which is rare. They think they are undervalued.

DON'T BUY

It doesn't pass his ESG screenings, since they sell a lot of tobacco. This business grew by acquisition and little organic growth. You gotta wonder when cars go all electric way into the future, so their service stations may have to reinvent themselves. Investors had some doubts when they tried to buy France's Carrefour supermarkets.

DON'T BUY

A good acquirer, making some good ones in recent years. They will continue to buy but it's getting more difficult because ATD itself is so big now that a purchase makes less impact than before. They tried and failed to pick up France's Carrefour recently. There's some organic growth in existing operations but there's better growth in other names.

DON'T BUY

Entry point now? The price has always been rich for him. They buy companies to grow, though recently this drive has been tempered. The recovery will boost travel and benefit ATD. ATD wants to increase the merchandise footprint in their stores and will adapt to e-cars over time. It's still pricey for him, but better than a year ago.

BUY

The poster-child for consolidators. Leading convenience store operator in Canada, US and Europe. There is an expansion opportunity with new acquisitions in Hong Kong. The multi-voting shares of the partners will expire at the end of this year, and transformational change may happen.

PAST TOP PICK

(A Top Pick Feb 07/20, Down 15%) People are travelling less and buying less gas. The additional items purchased in-store after filling up is a major component of their business. Covid turnaround play and you should see higher revenues once the virus fades away. Maybe in a year or two, the government may be more receptive to the bid for Carrefour if the chain is struggling. He thinks the move is soundly based on their previous acquisition and operation strategies.

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Alimentation Couche-Tard (B) (ATD.B.TO)