Potential 7-Eleven Acquisition Will Strengthen Global Brand Presence

Key Takeaways

• The acquisition of Seven & i Holdings and TotalEnergies' assets in Europe is set to boost global growth and reduce expenses.
  
• Strategic investments in food programs, new stores, and EV infrastructure are likely to drive revenue growth and improve profit margins.
  
• Regulatory changes and shifting consumer behaviors create uncertainty in merchandise sales, while climate events and U.S. trends pose risks to revenue growth and margins.

Catalysts

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

• The potential acquisition of Seven & i Holdings, including the globally recognized 7-Eleven brand, is expected to accelerate global growth and strengthen these brands, which could significantly boost revenue and earnings.
  
• The acquisition of TotalEnergies’ assets in Europe, which nearly doubled Couche-Tard's presence in the region, is beginning to realize synergies and is expected to reduce operating expenses and increase revenue over time.
  
• Expansion and improvement of food and loyalty programs, particularly meal deals in North America and increased loyalty membership worldwide, are likely to drive higher revenues and margins due to increased customer traffic and transaction value.
  
• Investments in new stores and the significant pipeline of real estate developments, with over 1,000 sites under development, are anticipated to contribute to revenue growth as they increase the company's operational footprint.
  
• The expansion of the EV charging network and advancements in the U.S. B2B fuel segment are expected to grow non-fuel income and enhance margins, as these higher-margin services become a larger portion of the business.

Alimentation Couche-Tard Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alimentation Couche-Tard's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.7% today to 4.2% in 3 years time.
• Analysts expect earnings to reach $3.2 billion (and earnings per share of $3.51) by about March 2028, up from $2.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.6 billion in earnings, and the most bearish expecting $2.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.1x on those 2028 earnings, up from 16.4x today. This future PE is lower than the current PE for the CA Consumer Retailing industry at 21.4x.
• Analysts expect the number of shares outstanding to decline by 0.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.0%, as per the Simply Wall St company report.

Alimentation Couche-Tard Future Earnings Per Share Growth

Risks

• Despite positive developments, the challenging consumer trends in the United States, such as inflationary pressures and softer fuel demand, remain a potential risk to revenue growth and net margins.
  
• The ongoing negotiations with Seven & i Holdings, including significant distractions and frustration, could lead to missed opportunities or integration challenges, impacting future earnings.
  
• Severe weather events such as wildfires and winter storms have already negatively impacted sales, and continued climate-related disruptions could affect revenue and operating expenses.
  
• The regulatory changes and consumer behavior shifts in key markets such as the Netherlands and U.S. nicotine market create uncertainty in merchandise sales and can influence overall revenue dynamics.
  
• The acquisition and integration of businesses, while presenting growth opportunities, come with execution risk and reliance on effective synergy realization to impact net margins positively.

Valuation

• The analysts have a consensus price target of CA$87.339 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 $75.7 billion, earnings will come to $3.2 billion, and it would be trading on a PE ratio of 21.1x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of CA$66.54, the analyst price target of CA$87.34 is 23.8% 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.