Expanding successfully into the United States and Europe is a goal that has eluded many Canadian companies. Not this one.
This year, the company added to its convenience store empire with the purchase of two more U.S. chains. Acquisitions generally add risk. Yet over and over again, this stock has demonstrated its ability to integrate its acquisitions very profitably.
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ALIMENTATION COUCHE-TARD INC. (symbol ATD.B on Toronto; couche-tard.com) operates 12,215 convenience stores across North America and Europe.
In the three months ended October 15, 2017, sales jumped 43.8%, to $12.14 billion from $8.45 billion a year earlier (all figures except share price in U.S. dollars). The jump was mostly due to the acquisition of convenience-store chain CST Brands (symbol CST on New York). Earnings per share climbed 37.9%, to $0.80 from $0.58. Cost controls, in addition to Couche-Tard’s profitable acquisitions, contributed to that gain.
The company’s latest purchases include its March 2015 acquisition of The Pantry chain in the U.S. Couche-Tard acquired that business for $1.7 billion.
More recently, it paid Imperial Oil $1.7 billion for 279 Esso gas stations in prime Ontario and Quebec locations. That deal closed in August 2016.
The company also completed the CST acquisition earlier this year for $4.4 billion U.S. Its bid for the operator of 1,900 U.S. and Canadian gas stations and convenience stores beat out 7-Eleven’s. As part of the final sales agreement, Couche-Tard sold a significant portion of CST’s Canadian assets to Parkland Industries (symbol PKI on Toronto) for $986.0 million.
Growth stocks: Company buys back shares at below market price
In July 2017, Couche-Tard agreed to buy Holiday Stationstores of the U.S. It has not revealed the purchase price, but the amount is likely in the range of $1.6 billion to $1.7 billion. The deal was set to close on December 22.
Holiday is a major convenience-store operator in the Midwestern U.S. It owns more than 500 locations (a mix of franchise and company-owned outlets), a food commissary and a fuel terminal.
Growth by acquisition adds risk, especially with a string of deals as big as these. However, Couche-Tard has a long track record of successfully integrating those businesses.
Earlier this year Couche-Tard also announced they will repurchase 4.3 million of its Class B voting shares from Metro Inc. It will pay $57.17 each, for a total of $245.8 million.
In separate transactions, 11.4 million Class A multiple-voting shares held by Metro will be acquired by Caisse de dépôt et placement du Québec. Finally, under a previous agreement with Couche-Tard, Metro will convert another 11.4 million of its Class A shares into Class B shares before selling them to the public. Metro will be left holding just under 1% of Couche- Tard’s total outstanding shares.
For Couche-Tard, it’s a chance to buy back shares at below market value.
The company last raised its dividend with the December 2016 payment. That payout increased 16.1%, to $0.09 (Canadian) from $0.0775. The shares now yield 0.6%.
Recommendation in Stock Pickers Digest: Alimentation Couche-Tard is a buy.
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