Topic: Growth Stocks

Alimentation Couche-Tard integrates acquisitions, finds cannabis partner

Declining sales and earnings were mostly due to the higher U.S. dollar, which hurt Canadian and European contributions to the business.

A recent cannabis industry partnership should position the company to profit from the expanding legal cannabis market in Ontario and eventually across Canada. At the same the ongoing integration of its businesses works to low its long-term costs. 


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ALIMENTATION COUCHE-TARD (Toronto symbol ATD.B: www.couchetard.com) operates 12,575 convenience stores throughout North America and Europe. It continues to successfully integrate its major acquisitions and to position itself for future gains.

In the three months ended April 28, 2019, sales fell 3.7%, to $13.11 billion from $13.61 billion a year earlier (all figures except share price in U.S. dollars). Excluding one-time items, earnings fell 11.9%, to $295.0 million, or $0.52 a share, from $335.0 million, or $0.59. However, the declines were mostly due to the higher U.S. dollar, which hurt the contributions of the company’s Canadian and European operations.

Couche-Tard continues to grow by acquisition, including its 2017 purchase of convenience-store chain CST Brands for $4.4 billion. That growth strategy adds risk, especially with a list of acquisitions as big as CST. However, the company has a long track record of successfully integrating those businesses.

Growth Stocks: Alliance with Canopy Growth offers retail cannabis opportunities

The company and Canopy Growth (symbol WEED on Toronto) have entered into a trademark licensing agreement with one winner of the Ontario Alcohol and Gaming Commission’s 25 cannabis retailer licenses.

That lottery winner opened a “Tweed” branded retail store in London, Ontario on May 17, 2019. The licensee has full ownership and control over the store. However, it will sell Canopy Growth cannabis, using Couche-Tard’s retailing expertise in selling other age-restricted products such as tobacco and alcohol.

Longer term, the experience gained from this initial store should position Couche-Tard and Canopy Growth to expand elsewhere in Ontario when the provincial government allows more stores. It will also set them up to expand across Canada as well as the U.S. and internationally.

The stock trades at 18.9 times the forecast fiscal 2020 earnings of $3.22 U.S. a share. Couche-Tard raised its quarterly dividend by 25.0% with the April 2019 payment, to $0.125 (Canadian) a share from $0.10. The shares now yield 0.6%.

The company’s outlook remains positive, and earnings should rise as it further integrates its acquisitions. Couche-Tard also plans to continue to launch fresh-food initiatives and promotions to boost its sales. All these moves should further push up its share price. It has already risen 35% over the last year, and we think it can go higher.

Recommendation in Stock Pickers Digest: Alimentation Couche-Tard is a buy.

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