What to do with Couche-Tard, Empire/IGA, and Walmart titles? Here are some analyst recommendations that could move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.
Couche-Tard (ATD, $67.27): the formal addition of 2,200 TotalÉnergies businesses adds $2 to RBC’s target
As Alimentation Couche-Tard prepares to unveil its annual results during the week of June 26, Irene Nattel of RBC Capital Markets formally adds to its forecasts the acquisition of the 2,200 businesses in four European countries from TotalÉnergies announced in March .
In his eyes, the $4.5 billion transaction represents the quintessence of the group’s acquisitions with its strategically complementary assets. The attractive price paid will also produce a financially profitable transaction for shareholders, adds the enthusiastic analyst.
Irene Nattel predicts that the largest purchase in seven years will add 5-7% to profits in the first year thanks to the sharing of best practices, the geographical complementarity of the network and the realization of revenue synergies.
In the current environment of high rates and economic uncertainty, the analyst reiterates that Couche-Tard remains a favorite stock for the second half, as the company can generate free cash flow throughout economic cycles. In addition, the still healthy balance sheet gives it the financial flexibility to consider various options to add to its value, she argues.
Even after the European purchase and those of Mapco Express and Red Stores, the debt represents only 2.25 times the operating profit which provides a transactional capacity of still 10 billion US dollars, estimates the analyst.
Irene Nattel expects the TotalÉnergies transaction to add 5-7% to annual profits between 2025 and 2027, 2-4% more than her earlier forecast which instead incorporated the potential buyback of 15% of shares during this period. period.
“At the time of the announcement of the transaction, we had left our guidance unchanged, but we had raised the valuation multiple (to 18.5 times the expected earnings) to reflect the potential earnings of the acquisition”, puts- her in context.
For the fourth quarter, RBC analyst forecasts operating profit of US$1.1 billion (up 1.4%) and earnings of US$0.55 per share (unchanged), more than the respective consensus of US$1.06B and US$0.50, despite the lower margins expected on gasoline at the pump compared to last year.
These estimates are based on a 4.7% decline in revenue to US$15.6 billion, but a 43 percentage point improvement in consolidated operating margin to 7.1%. The analyst points out that the 10% depreciation of the euro against the US dollar and 6.5% against the loonie are two headwinds for the results.
In the end, Irene Nattel raises her target from $85 to $87, i.e. 18.5 times the profit expected in mid-2025 and renews her buy recommendation. She notes that the stock’s current valuation remains within the historical average seen since 2014 despite robust financial performance.