Upgrade National Bank Financial’s Vishal Shreedhar expects to see improvement from Alimentation Couche-Tard Inc.’s fourth-quarter financial results on June 28, however he warns the “backdrop remains challenging.”
Th equity analyst is projecting earnings per share of 53 cents, which is 4 cents above the consensus forecast on the Street and up a penny from the same period a year ago.
“Our forecasts reflect elevated fuel margins in North America, year-over-year fuel volume growth and share repurchases, partly offset by higher SG&A growth, higher interest expense and unfavourable aggregate FX,” he said.
Mr. Shreedhar emphasized Vehicle Miles Travelled (VMT) data suggests U.S. fuel trends point to an improvement year-over-year of approximately 7-8 per cent even with a “a weakening cadence through the quarter.” In Canada, he forecasts growth due to the gradual lifting of COVID-19 restrictions.
He also sees fuel margins remaining “strong” and said Couche-Tard has “recently outperformed.”
“OPIS data suggests U.S. national average fuel margins of about 37 cents per gallon during ATD’s Q4/F22 (our estimate reflects 39 c/g),” he said. “We highlight that beyond the quarter, OPIS fuel margins moderated (though remain above the long-term trends), averaging about 24 c/g for the first 6 weeks of Q1/F23. We highlight that since Q1/F21, ATD’s U.S. fuel margins have outperformed OPIS data by 6.7 c/g (on average); this compares to quarterly outperformance of about 1.27 c/g over the past 5 years (on average). Our understanding is that ATD has benefitted from growing scale, improved logistics and the Circle-K fuel rebranding.”
Mr. Shreedhar made modest increases to his financial forecasts with his earnings per share estimate rising to $2.59 from $2.51 for 2022 and sliding by 1 cent to $2.50 in 2023.
Maintaining an “outperform” rating for Couche-Tard shares, he bumped his target to $58 from $57. The average on the Street is $62.22.