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Holmes Osborne, CFA
Holmes Osborne, CFA
Articles (247)  | Author's Website |

Couche-Tard: A Leader in Convenience Stores

The stock could be a buy at the right price

Canadian company Alimentation Couche-Tard Inc. (TSX:ATD.B(ANCUF) (ANCTF) is the second-largest operator of convenience stores in the U.S. The stock has done well and earnings and revenues have climbed every year. Though the stock is not cheap, it might be a buy at the right price.

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The stock trades for 76.40 Canadian dollars ($57.41) and the market cap is CA$43.139 billion ($32.35 billion). Earnings per share were CA$3.19 and the stock trades at a price-earnings ratio of 23.9. The dividend is 40 cents and the dividend yield is 0.5%. The stock isn’t exactly cheap.

Growth has been strong. Sales were CA$34.5 billion in 2015 and grew to CA$51.4 billion in 2018. The fiscal year ends in April. Earnings over that time grew from CA$929 million to CA$1.67 billion. The profit margin is 3.07%, but the return on equity is an excellent 23.28%.

The company usually puts up about CA$1 billion in free cash flow, so the free cash flow yield is about 2.31%. Not exactly a cheap stock on that metric either. The balance sheet shows CA$621 million in cash and CA$2.26 billion in receivables. The liability side shows CA$3.846 billion in payables and CA$8.1 billion in debt. That’s a little heavy on debt for me. Stand and Poor's rates the debt as BBB, which is quite generous.

Couche-Tarde has 15,994 stores across the globe. It breaks down like this: 9,943 in North America, 2,718 in Europe, 1,291 CAPL and 2,042 Circle K franchises. The company opened its first store in Quebec in the 1980s. In 2001, it purchased its first chain of Big Foots in Iowa and surrounding states. In 2003, the company bought Circle K from Conoco (COP). In 2012, it entered Europe by buying Statoil’s convenience stores and later Topaz in 2016 in Ireland. The company is the second-largest player in the U.S. behind 7-Eleven parent Seven & I Holdings Co. (SVNDY).

The company earns 57% of its income from merchandise (food, candy, drinks, etc.), 41% from fuel and 2% from “other.” I’m not sure what other means. Maybe those tanks that fill up your tires. Here are some interesting facts. There are 155,000 convenience stores in the U.S. On average, 1,100 people visit a convenience store a day. A whopping 160 million Americans visit convenience stores every day. That’s almost half the country!

Couche-Tarde bought CST Brands Inc.’s 1,318 stores in 2016. CST operates under the names Valero, Ultramar and Corner Store. It also purchased the Esso brand from Imperial Oil (IMO) for its Quebec locations.

I was surprised to read that Canopy (NYSE:CGC), the Canadian marijuana company, and Couche-Tard are going to open a shop in London, Ontario. This looks like another growth avenue. London is halfway between Buffalo, New York and Detroit. Perhaps a good place for Americans to come.

I first learned of Couche-Tard from the managers of the Scout International Fund. They told me the convenience store industry has changed. It’s more of a shopping experience than just getting gasoline. I would agree with that assessment. Couche-Tard means “late night” in French.

So am I going to buy shares? No. The stock is too expensive, but I might buy at the right price. Couche-Tarde is probably the best operator of convenience stores in the world. I think it will keep growing unless we hit a recession.

Disclosure: We do not own shares.

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About the author:

Holmes Osborne, CFA
Holmes Osborne is principal of Osborne Global Investors.

Visit Holmes Osborne, CFA's Website


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