Investors pushed Couche-Tard’s stock to an all-time high during Friday’s session, after the mid-week unveiling of the Laval convenience store chain’s new five-year strategic plan.
This plan shined a spotlight on the company’s growth potential through 2028.
“Expectations were high in anticipation of the investor day organized on Wednesday, and Couche-Tard did not disappoint,” comments analyst Chris Li, at Desjardins Securities. “Couche-Tard is well positioned for attractive long-term growth. »
Managers have charted a path to reach the target of US$10 billion in gross profit (before interest, taxes, depreciation and amortization) in fiscal year 2028. That’s the equivalent of a compound annual growth rate 12% over five years.
Analyst Martin Landry, from the firm Stifel GMP, expected a target of US8.7 billion for 2028.
For comparison, Couche-Tard generated adjusted gross profit of US5.8 billion for its 2023 fiscal year ended in the spring.
To achieve its goals, Couche-Tard is focusing in particular on what it describes as “strategic flagships”, that is to say its in-store product offering, market share gains in the mature fuel market, the ability to unlock value with a differentiated loyalty program and enhanced digital experience, and growth organically and through acquisitions.
The plan includes particular attention to cost optimization. The company wants to position itself as one of the most efficient operators in its sector.
Couche-Tard therefore believes it has the potential to practically double its earnings per share within five years, and the plan presented to achieve this is deemed credible and feasible by Bay Street. The stock market appreciation of recent days seems to confirm this.
Organic growth opportunities, in particular, are largely undervalued by investors, according to analyst Irene Nattel at RBC.
She notes that the trend that began in 2018 to focus more on organic growth is accelerating.
Organic growth
To achieve the target, management will need to ensure the execution of its plan. The leaders’ roadmap for this purpose, however, is reassuring.
Investor reaction is telling given that the stock was already up about 25% in 2023 before the strategic plan was presented.
If it is reasonable to believe that the stock had risen in anticipation of the disclosure of the plan, analysts agree that the rise can continue by discounting the strong organic growth to come and possible acquisitions.
While consolidation of the American market remains the priority, TD analyst Michael Van Aelst points out that Latin America and Southeast Asia are also interesting expansion areas for the company given that the demand for fuel continues to grow there. This expert notes that Couche-Tard would probably join local partners to penetrate these regions.
With financial resources allowing it to spend up to US$10 billion to make acquisitions, Couche-Tard could also decide to improve its European network in certain regions where the company is less present.
Couche-Tard management also continues to see appeal in adjacent segments such as $1 stores, fast food and travel retail, which is reminiscent of the attempt to purchase a major chain of supermarkets in France two years ago.
Of course, the ability to realize synergies arising from acquisitions during integration is just as important as the ability to identify and close acquisitions.
Alimentation Couche-Tard shares ended the week at $74.40 on the Toronto Stock Exchange.
