Broader stock markets are getting wobbly again, with U.S. jobs numbers in the sights and recent hawkishness from the Fed. Despite the return of volatility, Alimentation Couche-Tard (TSX:ATD) stock continues to remain solid.
Undoubtedly, the convenience store behemoth was fairly tame during the euphoric market rise of 2021 and the selloff of 2022. It’s the epitome of stable value and looks in a great position to weather what’s likely to be a recession year.
Indeed, when times get turbulent, boring is beautiful. And at this juncture, I find few firms as beautiful as Couche-Tard. With a rock-solid balance sheet and enough dry powder to make one of its largest deals to date, I remain a raging bull on the Quebec-based convenience retailer that, in many ways, is still run like a family business.
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Couche-Tard: Wheeling and dealing (at a smaller scale) should drive earnings growth
Though Couche-Tard hasn’t had much luck when going on the hunt for big-scale international deals (the pursuit of French grocer Carrefour was rejected nearly instantly), it is worth noting that Couche has been making smaller-scale deals while continuing to invest in the in-store experience.
Recently, the Quebec-based retailer quietly scooped up Big Red stores and membership interests in True Blue carwashes. Such deals are small in nature, but such small deals should not go ignored. Every little deal is likely to help drive earnings growth and value.
Couche-Tard knows that paying less to get more and driving synergies is the key to unlocking value for its shareholders. Few firms do mergers and acquisitions (M&A) better than Couche’s managers — at least on such a consistent basis!
The rise of EVs could be a plus for Couche-Tard stock
The company isn’t just trying to drive near-term same-store sales growth numbers, Couche-Tard is making moves to improve its long-term positioning.
Indeed, the rise of EVs (electric vehicles) will weigh heavily on fuel sales over the next decade. As Couche-Tard pushes to add more EV chargers at its stations while improving upon its merchandising offerings, I view Couche-Tard, as an evolving earnings growth story.
Undoubtedly, not all convenience store operators are financially equipped to deal with the rise of EVs. Smaller-scale convenience stores and gas station firms (many of Couche-Tard’s peers) may not have the financial flexibility to make big investments in the future. It’s these such firms that will face the most pressure as more EVs hit the roads.
Arguably, Couche-Tard is a great candidate to take advantage of the pains of its peers, as they struggle to adapt to the new age. With that, I suspect Couche-Tard will be able to get incredible value from M&A in time.
Couche-Tard’s balance sheet remains robust. With rates continuing to surge, cash will be king. And Couche-Tard will have even more growth levers it can pull.
The bottom line on Couche-Tard stock
Couche-Tard stock remains a great value, as it continues to hold up in the face of the stock market selloff.
The stock is less than 2% from its all-time high and trades at just 16.7 times trailing price to earnings (still so low for a defensive growth icon). I’m a fan of the long-term strategy and the road going into a recession. I own shares and plan to buy more incrementally through 2023.
