Among the top Canadian blue-chip stocks I continue to be bullish on, Alimentation Couche-Tard (TSX:ATD) remains near the top of the list.
There are a number of reasons for this, but my analysis keeps coming back to the same thing. Simply put, Couche-Tard has among the best valuations in an industry that could see market-beating growth for some time to come. So, for investors looking for top quality value stocks worth buying in this environment, Couche-Tard is certainly a top option to consider right now.
That said, some investors don’t have an investing timeframe of a decade or two. Accordingly, let’s dive into where Couche-Tard stock could be headed over the next three years.
Resilience and efficiency
Among the key factors I think investors are looking for in this current environment is a mix of resilience and the ability to weather whatever economic climate may be ahead. Maybe you’re in the soft landing camp, and maybe not. But with the risk profile of this market clearly increasing over the course of the past few months, playing it safer than usual could be the way to go.
In that regard, I think Couche-Tard is a top company worth considering. This convenience store operator currently holds around 17,000 locations under its corporate umbrella under well-known brands such as Circle K, Ingo, and Mac’s. The company’s strong earnings growth in recent years (averaging 22% over the course of the past decade) has driven solid share price appreciation.
That said, the company’s underlying multiple hasn’t really expanded as many profit-driven growth stocks such as this would normally see. Currently trading at just 15 times forward earnings, Couche-Tard is a company that’s relatively attractive with a business model that’s about as stable as it gets.
Until folks stop commuting (and picking up some snacks on a road trip on the way), Couche-Tard will remain a top stock to continue holding in this environment.
Three-year outlook for Couche-Tard
There are some reasons why Couche-Tard’s valuation may be lower than many investors might expect. Analysts have forecasted annual earnings growth of around 6% over the next three years, which is markedly lower than the company’s previous growth rate. Much of that growth has been driven by acquisitions, so it’s clear that analysts are less bullish on the company’s ability to grow via acquisition in the years to come.
That’s fair, as a number of Couche-Tard’s most notable acquisition attempts have fallen through of late. This is a company that increasingly needs to make larger and splashier deals to simply continue to grow at its accelerated pace. The 6% annual EPS growth number that the market has priced in is likely fair and conservative. Two aspects I think long-term investors ought to embody in the quarters to come.
However, I also think that there are key earnings growth levers the company can pull to continue to see better-than-expected earnings growth moving forward. The convenience store giant has done a great job of prioritizing shareholder returns, buying back more than 3% of its outstanding shares each year. Thus, while this isn’t a screaming buy for dividend investors out there (with a dividend yield around 1%), investors do benefit from a shareholder-friendly management team.
Over the long term (and over the next three years), Couche-Tard looks like a big potential winner from increased investor demand for defensive stocks that can provide steady growth.
