Alimentation Couche-Tard: Driving Growth

Canadians have increasingly been travelling within Canada and exploring the outdoors this summer, which is expected to continue into fall and winter.

While Canadians have always enjoyed the open road, the pandemic has fueled a newfound love for the outdoors, and a greater desire to get behind the wheel, according to a poll conducted by Leger Marketing.

This trend has been driving demand for fuel and snacks, to the benefit of Alimentation Couch-Tard (ATD.B). I am bullish on the stock. (See ATD.B stock charts on TipRanks)

Couche-Tard is a global leader in convenience and fuel retail, operating in 26 countries, with more than 14,200 stores, of which approximately 10,800 offer road transportation fuel. With its well-known Couche-Tard and Circle K banners, it is the largest independent convenience store operator in the United States, and is a leader in the convenience store industry in Canada, Scandinavia, the Baltics, and Ireland.

The Leger survey also indicates that of the Canadians who were planning a road trip, 50% were planning a longer trip and 95% are likely to travel outside their city (64% very likely), while 42% are likely to go out of their province. The increased demand for road travel has been largely driven by the pandemic, as the majority of Canadians (73%) have had to change their summer vacation plans, according to Leger.

Return to Work, Solo Commuting

According to a different study by Leger, more Canadians are expected to drive to work when companies begin allowing employees to return to the office.

The survey found that 71% expect to use a car to get to work, an increase from the 65% of commuters who used a car to get to work in the past year. The most interesting finding though was that 67% of commuters will be travelling in their car by themselves, compared to 4% who will be carpooling.

Drivers of Growth

Acquisitions have been a fundamental driver of growth, as the Couche-Tard management team has a long and successful track record of acquiring stores. According to its 2021 Investor Day presentation, Couch-Tard has successfully integrated a total of 65 deals, and has added 10,600 stores globally since 2004. This trend is expected to continue, as the company has plans to further consolidate the U.S. and Asian markets.

In addition to acquisitions, the company has been an innovator in the space as they are continually introducing new items in their convenience stores, and looking at sustainability initiatives through the issuance of its inaugural green bond in May of this year.

A green bond is a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects.

Innovation in Convenience

The company also plans on increasing its offerings in two very different segments within its stores.

With its Fresh Food, Fast initiative, the company plans to expand its healthy food menu to cater to the health-conscious consumer. The concept has achieved such strong performance in North American test markets, that the program is now being rolled out globally.

As well, Couche-Tard offers cigarettes and alcohol in many markets, but is now looking to increase its cannabis offering, where regulation permits. In 2019, Couche-Tard made a strategic investment into Fire & Flower (FAF), buying 9.9% ownership and a path to a controlling stake. In March of 2021, Couche-Tard announced that it had converted its secured and unsecured convertible debentures into equity, raising its stake to 19.9%.

Fire & Flower currently has 81 operating stores, with a pipeline for continued growth.

EV Charging Stations

With the launch of its green bond, which must fund sustainable initiatives, Couche-Tard has been installing EV charging stations.

EVs are expected to be 7-12% of the global fleet by 2030, which would equate to approximately 2 billion vehicles. This opportunity provides the company with a long tail of growth if it can successfully roll out charging stations in its installed base of gas stations.

Wall Street’s Take

From Wall Street analysts, ATD.B earns a Strong Buy consensus rating, based on nine Buy ratings and three Hold ratings. The average ATD.B price target of C$55.13 puts the upside potential at 6.5%.

Bottom Line

With economic recovery underway, and vaccination programs quickly moving forward, one can see and feel the demand for travel increasing.

Travel activity data is also showing a trend towards individual-use vehicles. Couche-Tard is set to be a beneficiary of increased travel activity, and its initiatives to further drive long-term growth.

The company can be expected to maintain its long-term growth trajectory, which makes me bullish on the stock.

Disclosure: On the date of publication, Sean Tascatan had no position in any of the companies discussed in this article.

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