TD Report Alimentation Couche-Tard Inc.
(ATD-T) C$84.02
Updating Model, Target Ahead of Q3/F24 Results
Event
Q3/F24 results March 20. We raise our EPS to $0.84 (from $0.77 previously) on
higher U.S. fuel margin estimates, partially offset by lower SSSG assumptions.
The +14% EPS is expected mostly from higher Europe/Canada fuel margins,
stronger in-store GM% and the NCIB. Consensus is $0.86 (range: $0.80-$1.06).
TotalEnergies acquisition should add 3% to EBITDA.
Updated near-term SSSG assumptions had a minimal impact on our annual EBITDA
estimates, but interest expense (post-financing) and what we believe is a
temporary pause in the NCIB activity (assuming no catch-up) reduces our
F2025E/F2026E EPS by 1%/3%.
Long-term earnings growth prospects remain highly attractive, in our view,
and we believe our target valuation range was too conservative. Moving it up a
turn to 17x-18x (vs. current 18.4x consensus) and rolling out a quarter lifts our target
price to C$94.00.
Impact: MIXED
Investors have historically reacted to quarterly SSS (particularly U.S.), all
else equal; so Q3/F24 may be disappointing to some. Consensus (ex-TD) is
forecasting U.S. SSS +0.8%, but industry sales have been under pressure since
student loan repayments resumed in September; we reduce our U.S. SSSG to
-2.0% (previously -0.5%), supported by Nielsen scanner data and 7-Eleven's monthly
SSSG (both imply a 200bp sequential drop). Revising our SSS forecasts slightly
lower for the next few quarters to reflect a gradual consumer recovery has an
immaterial impact on our EBITDA forecasts.
Based on OPIS data and our proprietary adjustments, U.S. fuel margins appear to
have held flat y/y at 48.4cpg (original estimate: 45cpg), leading to our higher
Q3/F24E EPS. Fuel volumes are expected to remain challenged by the weaker
consumer, though, in Canada, we see ATD winning back share from discounters.
Couche-Tard paused its NCIB in January, possibly to direct more cash toward the
TotalEnergies acquisition (closed January 3) as it waited for recent debt issuances
to close (mid-February), or it may be conserving cash for future transactions.
TD Investment Conclusion
ATD has created exceptional shareholder value — both recently and long-term —
and we see that continuing over the coming years, underpinned by management's
five-year ~7.5% organic EBITDA CAGR target (11.6% including acquisitions). That
said, there may be a better entry point after Q3/F24 results.