Desjardins Ahead of the Tuesday’s premarket release of Alimentation Couche-Tard Inc.’s second-quarter 2024 earnings report, Desjardins Securities analyst Chris Li expects the results to exhibit “softening” U.S. consumer trends and tobacco headwinds, “offset by continuing solid fuel margins supported by favourable industry fundamentals and company initiatives.”
“While we do not expect the results to be a catalyst, we remain positive on ATD’s long-term organic growth initiatives and M&A opportunities discussed at its recent investor day,” he said. “Our organic EBITDA CAGR [compound annual growth rate] of 4–5 per cent (FY23–28) is conservative vs management’s 7 per cent, with upside from M&A.”
Mr. Li is now expecting earnings per share of 77 US cents, down from 72 US cents during the same period a year ago and a penny below the 78-US-cent consensus forecast. His revenue estimate of US$16.357-billion is narrowly higher than Street’s projection of US$16.254-billion, but it’s also a decline from a fiscal 2023 (US$16.88-billion).
“In line with peers, we expect U.S. merch SSSG [same-store sales growth] of 1.3 per cent vs 2.1 per cent in 1Q FY24, driven by slower tobacco sales and a cautious U.S. consumer, offset by growth from packaged beverages, Fresh Food, Fast and private brands,” he said. “ATD is also up against a tough year-ago comp of 5.6 per cent. We believe consensus of 2.6 per cent is likely high. We forecast merch SSSG of 2.0 per cent in Europe (2.5-per-cent consensus) and 4.5 per cent in Canada (4.3-per-cent consensus), and 50 basis points year-over-year yoy globally due to a favourable product mix.
“SS fuel volume in the US (0 per cent vs 0.6-per-cent consensus) and Europe (down 0.5 per cent vs up 0.1-per-cent consensus) is expected to be impacted by weaker demand, while Canada (4.5 per cent vs 5.1-per-cent consensus) should benefit from promotional activities to win back market share.”
While he made modest increases to his 2024 revenue and earnings expectations, Mr. Li maintained a $82 target for Couche-Tard shares, reiterating a “buy” recommendation. The average on the Street is $86.60.
“While the potential return is extremely limited for a Buy rating, our positive view is based on attractive long-term growth, supported by ATD’s strong financial position. We plan to revisit our estimates and valuation following the results,” he said.