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Couche-Tard shares expected to surge on Statoil, other advantages: analysts

MONTREAL – Alimentation Couche-Tard’s shares are expected to continue surging over the next year or so as the convenience store giant benefits from its Scandinavian acquisition, sees a boost from a lower loonie and positions itself for further acquisitions, financial analysts said Monday.

Keith Howlett of Desjardins Capital Markets raised his target price for Couche-Tard’s (TSX:ATD.B) shares by nearly 19 per cent to C$64 from $54.

Most of the increase was due to benefits from the Statoil Fuel & Retail deal expected to be realized in fiscal 2015 and 2016, he wrote in a report, a day before Couche-Tard releases its third-quarter results.

Couche-Tard shares, which have increased 74 per cent in the past year, were down 44 cents at C$55.19 in Monday afternoon trading.

The Quebec-based company, which reports in U.S. dollars, is expected to earn 87 cents per share in adjusted earnings on US$11.1 billion of revenues. That compared with 48 cents per share on US$6.6 billion of revenues a year ago, before the Statoil acquisition.

“Our view is that investors should focus on the near-term benefits flowing from the Statoil acquisition and the significant acquisition opportunities that are likely to present themselves over the next 18 month in Europe, the U.S. and Canada,” Howlett said.

Couche-Tard has said it expects to achieve US$150 million to US$200 million in cost savings over three years. But analysts looked to the company’s U.S. acquisition of Circle K in 2003 which resulted in more savings being realized quicker than planned.

Howlett said Couche-Tard, 7-Eleven and regional retailers are the leading acquisition candidates as more oil companies exit retailing and pointed to Valero in the United States.

“Couche-Tard’s proven record of acquisition discipline and operational expertise places it in the ‘sweet spot’ of ongoing industry change.”

Irene Nattel of RBC Capital Markets increased her target price by $8 to $55 but said it could hit $70 if gas margins remain strong, or sink to $44 if they weaken.

In addition to Statoil, Nattel said a lower tax rate since the deal — 17 per cent in the second quarter — should contribute another $100 million.

With Hess recently announcing plans to sell its retail network and Couche-Tard declaring itself interested in growing, Nattel added there is “the possibility of a sizable acquisition within 12 months.”

Derek Dley of Canaccord Genuity also increased his target price to $62 from $58. He cited the continued integration of Statoil and the ability of Couche-Tard to add US$1.5 billion of incremental debt from acquisitions.

“We believe the continued integration of Statoil Fuel & Retail, along with Couche-Tard’s position as one of the premier industry consolidators, has the company well-positioned for earnings growth,” he wrote.

Meanwhile, Howlett said he expects Couche-Tard will continue developing its high-margin food business despite the sudden resignation of a former 7-Eleven executive Joseph Chiovera after about two years.

The analyst said he believes Chiovera may have struggled amid Couche-Tard’s decentralized structure to convince regional heads of 300 to 700 stores in North America to adopt a uniform national platform.

Couche-Tard CEO Alain Bouchard said he wants fresh food to eventually account for one quarter of its gross margins, up from about 18 per cent last year.