Alimentation Couche-Tard Stock Looks Appetizing After Earnings Beat, Acquisition

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Alimentation Couche-Tard Inc. (TSX: ATD.B) surpassed analyst expectations for both revenue and earnings per share during its fourth quarter

SmallCapPower | July 12, 2017: Alimentation Couche-Tard Inc. (TSX: ATD.B) Wednesday reported fourth-quarter earnings per share of $0.52, excluding the impact of foreign exchange and various expense items, surpassing the analyst consensus of $0.46 a share. Revenue for the period, meanwhile, rose to US$9.6 billion from US$7.4 billion a year earlier, also beating expectations.

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Just two days earlier, Alimentation Couche-Tard announced on July 10, 2017, the signing of an agreement with Holiday Companies to acquire all of the issued and outstanding shares of Holiday Stationstores, Inc. and certain affiliated companies. Holiday Stationstores is a recognized leader in the convenience store and fuel retailing industry with over 500 stores throughout 10 states in the northern tier region of the United States. As on January 2017, Alimentation Couche-Tard has a network of ~12,500 stores in various geographic footprints.

The transaction is anticipated to close in the fourth quarter of Couche-Tard’s fiscal year 2018 and is subject to customary regulatory approvals and closing conditions. The estimated bump in EBITDA from the acquired business is expected to range between US$180 million and US$190 million on an annual basis, and that’s before synergies. The acquisition would lead to higher percentage growth in fuel volumes and merchandise revenues. Alimentation Couche-Tard reported EBITDA of US$637.1 million in the third quarter, up marginally from US$627.0 million from the same period in the previous year. Once the synergies are realized the margins can improve and efficiencies may kick in. CTS brands acquisitions and Holiday Stationstores should lead to significant cost savings and incremental synergies going forward but it’s really difficult to estimate the timeline for such.

Alimentation Couche-Tard trades at TTM price to sales multiple of 0.96x and trailing P/E multiple of 30.01x. Shares of Alimentation Couche-Tard have cooled off from their recent 52-week high ($68.63) and are trading nearing the 52-week low ($57.36). Alimentation Couche-Tard stock seems attractive from a long-term perspective at current levels of $60.15.

Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.

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