Companies with a global presence offer regional diversification for investors and are often positioned to outpace the broader markets. One such TSX stock is Alimentation Couche-Tard (TSX:ATD), which is valued at $70 billion by market cap.
ATD stock has created massive wealth for long-term shareholders, returning 562% in the last decade and an impressive 3,880% since October 2003. Let’s see why the TSX stock remains a top investment option right now.
Is ATD stock a good buy today?
Alimentation Couche-Tard is one of the largest Canadian companies that operates in the convenience sector. The company ended the first quarter (Q1) of fiscal 2024 with a network of more than 14,000 retail stores in the U.S., Canada, Europe, and other international markets.
ATD aims to lead verticals such as convenience and mobility, as it served 8.5 million customers per day in fiscal Q1 (ended in July). Moreover, a fragmented market in the U.S. provides ATD with consolidation opportunities, which should move the needle in terms of top-line growth.
In the last 10 years, ATD has increased its net earnings by 18.4% annually to $3.09 billion. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) surged by 15.4% to $5.76 billion, while free cash flow has increased by 14.5% annually to $2.37 billion in the last decade.
The company’s improving bottom line has allowed ATD to increase dividends by more than 25% annually since July 2014. Alimentation Couche-Tard currently pays shareholders an annual dividend of $0.56 per year, indicating a forward yield of just 0.77%. However, ATD’s widening cash flows and a payout ratio of less than 25% provide it with enough room to increase dividends while investing in growth projects.
What is the price target for ATD stock?
Alimentation Couche-Tard’s growth story is far from over. For instance, it forecasts the total convenience food market in North America and Europe at $700 billion, as 59% of fast-food customers consider purchasing a meal from a convenience store. ATD is focused on localizing its assortment of products to grow sales and expand its fast store count while optimizing the supply chain.
ATD estimates revenue from its food vertical to grow by 62% in the next five years while gross profits should increase by 84%, adding between $150 million and $200 million in EBITDA. It aims to end fiscal 2028 with a total EBITDA of $10 billion, up from $5.8 billion in fiscal 2023.
Similar to other companies, Alimentation Couche-Tard is also wrestling with rising costs and elevated inflation levels. Bay Street forecasts its earnings to narrow by 2% to $4.17 per share. But between fiscal 2025 and fiscal 2029, its earnings should expand by 15% annually.
Right now, ATD stock has a trailing enterprise value-to-EBITDA ratio of 16 times. ATD stock should almost double in the next five years if it trades at a similar multiple.
Analysts remain bullish on ATD stock as it trades at 17.5 times forward earnings. According to consensus price target estimates, it is priced at a discount of 15% right now.
