There’s an uneasy feeling still in the broad markets, with stocks rocking back in forth for the first half of April. Though the bull may be in a spot to take the place of the bear at some point this year, I’d argue that investors would be best served by going after the cheap stocks that have the means to move higher under their own power. Think companies like Alimentation Couche-Tard (TSX:ATD) that have been delivering solid earnings growth, even amid macro headwinds and concerns over slowing economic growth.
Simply put, Couche-Tard has been rolling with the punches over the past year. With the acquisition of TotalEnergies’s European gas station assets for US$3.3 billion, Couche-Tard broke its streak of not making any blockbuster deals. Of course, Couche-Tard has nibbled away at smaller-scale deals in recent years, but this latest pick-up (adding 2,000 stations across Europe) is the most remarkable one in a while. Further, I think Couche-Tard got a pretty good deal.
A lot of energy companies seem to be more than willing to put up their retail businesses for sale these days. And few firms have the buying power as the likes of a Couche-Tard. The company’s patience is beginning to pay off. And its stock could have way more room to run, as the company integrates its latest deal while opening up the door to other opportunities.
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Couche-Tard finally makes good use of its cash load
After spending US$3.3 billion, I think Couche-Tard still has around US$9-$10 billion or so to spend if it sees an opportunity.
Just because it has the buying power does mean it will pounce at any pitch thrown in its direction. If Couche can’t get a great deal that entails knocking the ball right out of the park, it may not choose to swing — not while rates are high and firms rich with cash have the negotiating leverage.
I’ve been a long-term holder of shares of Couche-Tard. And I still manage to get wowed by moves made by management. Chief Executive Officer Brian Hannasch and his team are all about value creation, not hunting down quick gains or annual bonuses. With such an owner’s mentality, I think Couche-Tard stock has room to run.
Could Couche pursue a grocer next?
I must say the TotalEnergies deal came as a bit of a surprise, especially considering the firm has remarked on opportunities to be had in the Australasian region. Though Couche-Tard may still make a splash over there at some point in the future, I think that Couche’s managers have the discipline to wait it out. It would have been ideal to get a deal done in the Australasian region sooner rather than later, but if there are no targets that entail paying three quarters to get a dollar, it’s probably a better idea to wait and see. After all, price is likely the biggest determinant of whether a deal creates or destroys value.
Only time will tell when and where Couche will act next. Though Couche had a grocery deal shot down a few years ago, I’d not at all be surprised if the firm is considering options. A grocery supply chain could bring out the best in its convenience store network, as it looks to ready up for the next generation in convenience retail.
If Couche can make a grocery deal that makes sense at a reasonable multiple, I’d be all for it. However, given how grocery stock valuations have climbed in recent years, I think the odds of such a deal are quite low. For now, I expect Couche’s best option is to stay in the convenience store space while investing heavily in organic initiatives.
