Alimentation Couche-Tard Breaks Out: Here’s Why it Could Be Headed Even Higher

Alimentation Couche-Tard (TSX:ATD.B) stock is breaking out after an incredible Investor Day, but should you play a year-end rally?

gas station, convenience store, gas pumps

Image source: Getty Images

Shares of Alimentation Couche-Tard (TSX:ATD.B) broke out to hit a new all-time high on Thursday of $49 and change, thanks in part to an upbeat Investor Day delivered the day prior on July 14.

Undoubtedly, the convenience store kingpin has been one of the more misunderstood businesses in Canada. The Investor Day, I believe, cleared up a lot of confusion regarding the firm’s direction and its perplexing pursuit of French grocery giant Carrefour, which is now completely off the table. The incredible day sparked an incredible 5.8% single-day pop, which could be the start of a move to much higher levels going into year’s end.

Indeed, Couche-Tard stock’s big breakout was a long time coming.

As a part of the Investor Day, management shed some more light on its very ambitious growth plans, which inspired many sell-side analysts to upgrade their recommendations and price targets.

The company is still aiming to double its EBITDA to around $6.3 billion by fiscal 2023. Despite pandemic uncertainties, and the firm being relatively quiet on the M&A front, Couche-Tard is still going full speed ahead with its growth plans.

Although investors are still awaiting the company’s next big deal, as the company’s balance sheet continues to swell, I think the biggest takeaway from the Investor Day was that the Carrefour deal, a failed deal that caused pressure on Couche-Tard stock, is unlikely to end up happening.

Despite past comments from management about wishing for another shot to sweeten the pot in a takeover offer for the French grocer, it now appears that any such deal-induced value destruction is now out of the question.

The collective sigh of relief from investors who disliked the Couche-Carrefour tie-up was almost palpable.

Big growth ahead for Alimentation Couche-Tard

Moving ahead, Couche-Tard is likely to continue growing organically via various initiatives. Such initiatives are to include bolstering in-store offerings and removing friction from the payment process.

Such enhanced stores are likely to allow Couche-Tard’s overall margins to expand steadily into the next decade, even as fuel sales wane and EVs (electric vehicle) charging stations take their place at the local Circle K.

To double EBITDA by fiscal 2023, though, Couche-Tard will likely need to do more than expand upon its margins at its existing stores. The company needs to return to its roots and start making some acquisitions, preferably in the convenience store space and not the grocery arena.

Given management’s value-oriented background, they’re not going to make a deal for the sake of making the news or pleasing near-term traders. Couche-Tard is all about hunting down synergies and creating value for its long-term shareholders. These days, bargains are few and far between. And that’s likely why the company has been so quiet.

Foolish takeaway

In due time, I think the right deal at the right price will be landed. Until then, you can count on management to continue patrolling the global convenience store space for synergistic opportunities. In the meantime, expect quarterly results and earnings to fuel a continued rally in the stock.

Couche-Tard is still dirt cheap after its nearly 6% single-day pop. With more clarity on its growth plans, I think the stock could be headed to the $60 mark by year-end.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of ALIMENTATION COUCHE-TARD INC. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC.

More on Coronavirus

A airplane sits on a runway.
Coronavirus

3 Fresh Stocks I’m Likely Buying in 2025

I am likely buying Air Canada (TSX:AC) stock in 2025.

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Coronavirus

Canadian RRSP Stocks to Buy Now for Retirement

Alimentation Couche-Tard Inc (TSX:ATD) is a quality retirement stock.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Coronavirus

Retirees: What Rising Inflation Means for Your CPP Payments

If you aren't getting enough CPP, you can consider investing in stocks and ETFs. Canadian National Railway (TSX:CNR) is one…

Read more »

Coronavirus

Air Canada Stock Is Starting to Get Ridiculously Oversold

Air Canada (TSX:AC) has been beaten down to absurd lows.

Read more »

Coronavirus

Should You Buy Air Canada Stock While it’s Below $18?

Air Canada (TSX:AC) stock is below $18. Should you invest?

Read more »

Illustration of data, cloud computing and microchips
Stocks for Beginners

3 Canadian Stocks That Could Still Double in 2024

These three Canadians stocks have been huge winners already in 2024, but still have room to double again in the…

Read more »

Aircraft Mechanic checking jet engine of the airplane
Coronavirus

Can Air Canada Stock Recover in 2024?

Air Canada (TSX:AC) stock remains close to its COVID-19 era lows, even though its business has recovered.

Read more »

A airplane sits on a runway.
Coronavirus

3 Things to Know About Air Canada Stock Before You Buy

Air Canada stock continues to hover below $20 despite the sharp rise in travel demand seen across the industry. What's…

Read more »