Global Expansion And EV Charging Will Strengthen Future Market Position

Key Takeaways

• Strategic acquisitions and asset integration, including TotalEnergies and others, aim to enhance global network, margins, and future revenue growth.
  
• Investment in technology and customer-centric initiatives like meal deals and EV charging to optimize costs and boost earnings.
  
• Natural disasters, weak regional markets, reliance on promotions, and integration challenges pose risks to Alimentation Couche-Tard's revenue growth and earnings stability.

Catalysts

Operates and licenses convenience stores in North America, Europe, and Asia.

• Alimentation Couche-Tard is committed to expanding its global network through both M&A and organic growth, with notable progress on acquiring Seven & i Holdings and GetGo, indicating potential future revenue growth.
  
• Efforts to integrate TotalEnergies assets with a focus on rebranding, back-office integration, and leveraging synergies are expected to drive improved margins and earnings in the European market.
  
• Promotion of bundled meal deals and private label brand expansion in the U.S. aims to increase customer value perception and traffic, potentially enhancing net margins and revenue.
  
• Ongoing investment in technology, including advanced data analytics for promotional activities and operational enhancements, is expected to optimize costs and drive future earnings growth.
  
• Expansion of EV fast charging networks in Europe and the U.S. B2B fuel business, along with strategic pricing initiatives, are expected to improve fuel margins and drive future revenue growth.

Alimentation Couche-Tard Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alimentation Couche-Tard's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 4.5% in 3 years time.
• Analysts expect earnings to reach $3.6 billion (and earnings per share of $3.75) by about February 2028, up from $2.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.7x on those 2028 earnings, down from 19.4x today. This future PE is lower than the current PE for the CA Consumer Retailing industry at 19.4x.
• Analysts expect the number of shares outstanding to decline by 1.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.76%, as per the Simply Wall St company report.

Alimentation Couche-Tard Future Earnings Per Share Growth

Risks

• The catastrophic hurricanes in the U.S. led to the shutdown of hundreds of stores, affecting merchandise revenue and fuel volumes, which poses a risk to revenue and earnings stability.
  
• The ongoing integration and performance in the weak Hong Kong market, with a decrease in cigarette units and increased sales taxes, could continue to negatively impact net margins in that region.
  
• The decrease in same-store merchandise revenues in the U.S., Europe, and Canada, alongside softness in overall market traffic, could put pressure on future revenue growth.
  
• The reliance on aggressive promotions, such as those for dispensed beverages, which compressed margins significantly, may affect future net margins if not managed carefully.
  
• The acquisition-driven increase in revenue is accompanied by the risk of not realizing anticipated synergies, especially in complex carve-outs like those from TotalEnergies, which could impact earnings.

Valuation

• The analysts have a consensus price target of CA$90.053 for Alimentation Couche-Tard based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $79.6 billion, earnings will come to $3.6 billion, and it would be trading on a PE ratio of 18.7x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of CA$75.6, the analyst price target of CA$90.05 is 16.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.