Desjardins When Alimentation Couche-Tard Inc. reports its fourth-quarter financial results after the bell on Tuesday, Desjardins Securities analyst Chris Li expects to see “strong fuel margins and solid merchandise sales and margin, offset by elevated opex, sluggish fuel volume and higher volatility in Europe.”
However, he expects investor attention to centre on the outlook and trends in the current first quarter given the spike in gas prices.
“While industry fuel margins have moderated from mid- to high US30cpg (January–April) to an average of US28–29cpg in May and June, we believe our low-US30cpg forecast is achievable in 1Q and FY23, supported by company-specific initiatives (fuel rebranding to Circle K, enhanced procurement through partnership with Musket, pricing optimization, and other sourcing and logistics capabilities). All else equal, a one-cent change in U.S. fuel margin impacts our FY23 EPS by US$0.08 (3 per cent). Fuel volume will be weighed down by high prices. While SG&A expenses will remain elevated in the near term due to higher labour costs and credit card fees, the pressures should start to ease in 2Q. We expect c-store sales and margins to remain solid, supported by cost pass-through and positive mix shift (single serve, private label, etc), partly offset by higher commodity costs (foodservice) and reduction in discretionary (ie carwash).”
With that change to his fuel margin estimate, Mr. Li raised his full-year earnings per share forecast for 2022 to $2.57 from $2.41 and 2023 to $2.56 from $2.51.
He maintained a “buy” rating and $60 target for Couche-Tard shares. The average on the Street is $62.72.
“While we expect earnings to remain volatile near-term due to macro uncertainties, we remain positive on ATD’s longer-term growth potential, supported by a strong pipeline of growth initiatives. Its strong balance sheet is valuable, especially in the current market, supporting capital return,” he said.