On Friday, UBS initiated coverage on Alimentation Couche-Tard Inc, a prominent player in the global convenience store market, with a Buy rating and a price target set at C$97.00. The company, which trades under the ticker ATD/B:CN on the Toronto Stock Exchange and OTC: ANCUF, has been recognized for its significant role as a consolidator in the industry, particularly within the United States where it stands as the second-largest operator.
Alimentation Couche-Tard has a history of approximately 75 acquisitions since 2004, successfully achieving synergies ranging from 30% to 60% of the acquired EBITDA.
Despite this aggressive expansion strategy, the company currently holds a modest 4% of the U.S. inside convenience store sales, in a market that remains highly fragmented. Approximately 60% of U.S. convenience stores are single-store operations, presenting Couche-Tard with a long-term opportunity to continue its consolidation efforts.
Internationally, Couche-Tard is not only a dominant force in the Canadian and European markets but also leverages its scale to share knowledge and best practices across regions. This includes transferring electric vehicle (EV) expertise from Europe to North America, which positions the company favorably as the industry evolves.
UBS also highlighted the potential for a significant catalyst in Couche-Tard's growth trajectory, should it succeed in acquiring Seven & i, a transaction currently under the coverage of Takahiro Kazahaya. However, even without this acquisition, Couche-Tard boasts a strong balance sheet with over $10 billion available for all-cash acquisitions, underscoring its readiness for further expansion.
In addition to its acquisition-driven growth strategy, Couche-Tard is actively pursuing various initiatives aimed at driving customer traffic and enhancing profitability. UBS projects that these efforts will contribute to the company achieving an EBITDA of $7.9 billion by FY2028, which is 10% higher than the consensus estimates, suggesting an attractive risk/reward proposition for investors.
In other recent news, Alimentation Couche-Tard reported an adjusted EBITDA of $1.14 billion and earnings per share (EPS) of $0.48, slightly below the consensus estimate of $0.50. The company's strategic efforts to acquire Seven & i Holdings were maintained with a revised offer reflecting a 9x EBITDA multiple, according to BMO (TSX:BMO) Capital Markets. However, the offer might not be sufficient to secure a deal, as suggested by the firm's analysis.
Furthermore, Alimentation Couche-Tard's potential acquisition is under scrutiny, with firms like RBC (TSX:RY) Capital and National Bank Financial maintaining positive ratings on the company's stock due to potential synergies. Nevertheless, CFRA lowered its 12-month price target for the company to C$80 from C$83, while maintaining a Hold rating. Amid these developments, Alimentation Couche-Tard remains confident in managing its leverage ratio.
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