Alimentation Couche-Tard: Canadian Stock Worth Your Attention

Alimentation Couche-Tard (ATD.B) is probably a name most investors have never heard of. It's a Canadian exclusive that may be worth the trouble for American investors. Couche-Tard is a Quebec-based Read More... The post Alimentation Couche-Tard: Canadian Stock Worth Your Attention appeared first on TipRanks Financial Blog.

Alimentation Couche-Tard: Canadian Stock Worth Your Attention

Alimentation Couche-Tard (ATD.B) is probably a name most investors have never heard of. It's a Canadian exclusive that may be worth the trouble for American investors.

Couche-Tard is a Quebec-based convenience store chain that is better-known to Americans by its Circle K banner. The company has been very successful with its growth-by-acquisition strategy, which has not worked out for many firms lacking discipline.

With a plan to expand to various parts of the world, Couche-Tard also has the means to grow at an impressive rate, even as its market cap swells into mega-cap territory. Indeed, the industry remains fragmented, especially from a global perspective.

The Circle K owner isn't just a roll-up of mom-and-pop convenience stores or gas stations, though. It has one of the best management teams in Canada.

I am incredibly bullish on shares of Couche-Tard. (See ATD.B stock charts on TipRanks)

Value in the great north?

Couche-Tard stock has a price-to-earnings multiple of 15.7. The company hasn't been wheeling and dealing as much as investors would have liked, possibly due to a lack of bargains in today's frothy market. Regardless, Couche-Tard is a stock that investors seem to discount for one reason or another.

Perhaps it's the low-tech business model, the disruptive impact of EVs on gas stations, or less frequent M&A activity?

In any case, Couche-Tard is a stock that has a roadmap to really grow its net profits. Whether it be via acquisitions, same-store sales growth initiatives, or the inclusion of margin-enhancing items (think private label merchandise), Couche-Tard has a lot going for it.

Shrinkflation: A Potential Catalyst?

There's nothing like the power of a good brand. Still, the continued rise of private-label and off-brand products cannot go ignored.

The recent rise in inflation has not just caused price increases on food items; it's caused something far less noticeable: shrinkflation. Many consumer-packaged goods manufacturers are not inflating their prices, but rather reducing the amount of product regularly sold.

For Couche-Tard, its private label could get a nice boost, as consumers take notice of the shrinkflation going on at the snack aisle. Private-label brands are not only cheaper, but they can get an edge over branded products by mitigating the effects of broader shrinkflation on foodstuffs.

Couche-Tard's private label holds tremendous promise as a margin enhancer. As more consumers discover the quality of its brand in the hunt for a better value, Couche-Tard's margins could really shine through as the company continues its ambitious growth plan.

Wall Street's Take

According to TipRanks’ consensus analyst rating, ATD.B stock comes in as a Moderate Buy. Out of 12 analyst ratings, there are eight Buy recommendations, and four Hold recommendations.

The average ATD.B price target is C$57.33. Analyst price targets range from a low of C$45 per share, to a high of C$75 per share.

Disclosure: Joey Frenette owned shares of Alimentation Couche-Tard at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Alimentation Couche-Tard: Canadian Stock Worth Your Attention appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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Cummins Stock: Patience Required for Investors

Cummins Inc. (CMI), is an industrial giant with a strong competitive advantage. The company designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related Read More... The post Cummins Stock: Patience Required for Investors appeared first on TipRanks Financial Blog.

Cummins Stock: Patience Required for Investors

Cummins Inc. (CMI), is an industrial giant with a strong competitive advantage.

The company designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide.

It operates through five segments: Engine, Distribution, Components, Power Systems, and New Power.

Cummins is trading at a low forward multiple, but we remain neutral in the short-term because we believe we may be able to get a better entry point. (See Cummins stock charts on TipRanks)

Measuring Its Competitive Advantage

We can measure Cummins’ competitive advantage by comparing its earnings power value to the value of reproducing the business. Earnings power value is measured as adjusted EBIT after tax, divided by the weighted average cost of capital, and reproduction value can be measured using total asset value. If earnings power value is higher than reproduction value, then a company is considered to have a competitive advantage.

Cummins’ average EBIT margin over the past five years was 10.4%. Using its revenue for the last 12 months, its adjusted EBIT is as follows:

$23.2 billion x 0.104 = $2.41 billion

Using a marginal tax rate of 22%, the after tax adjusted EBIT is $1.88 billion.

Cummins’ weighted average cost of capital is 6.8%. The earnings power value is $27.65 billion ($1.88 billion divided by 0.068).

Finally, its total asset value is $22.61 billion. As a result, Cummins has a competitive advantage because its earnings power value is greater than the reproduction value of the business.

Growth Catalysts, Risks

Cummins is currently trading at 15.3 times earnings and approximately 11.5 times forward earnings.

Since the company is cyclical, it’s more sensitive to business cycles. As a result, its P/E ratio tends to mostly hover between 10 to 20. However, Cummins does generate a lot of free cash flow which it regularly uses for dividends and buybacks.

The company’s share count continues to decrease every year as a result of the buybacks. This means that earnings per share will increase even if earnings stay flat. The increased EPS leads to a higher share price even if the P/E ratio stays in the same historical range.

In fact, Cummins’ EPS remained relatively flat from 2011 to 2016 despite seeing earnings decline over that same period. The stock mostly trended up during that time period nonetheless, although it did so with a lot of volatility. This demonstrates the impact that share buybacks can have.

Another growth catalyst for Cummins is its participation in developing new technology that uses green energy. In particular, the company is focusing on hydrogen energy. It’s already powering some trains in Europe with its fuel cells, in addition to other applications, ranging from grocery trucks to the first PEM electrolyzer in the United States.

However, like many manufacturers these days, Cummins is vulnerable to supply chain disruptions that lead to uncertainties about the company’s operations.

On top of that, increased costs of raw materials may impact the company’s margins if it’s not able to pass on the expense. In addition, there is always the cyclical risk that is associated with the industry.

Wall Street's Take

Turning to Wall Street, Cummins has a Moderate Buy consensus rating, based on four Buys and five Holds assigned in the past three months. The average Cummins price target of $278.67 implies 27.1% upside potential.

Final Thoughts

Cummins is undoubtedly an industry leader, with a measurable competitive advantage.

However, given the cyclical nature of the industry, a stock like Cummins produces the best returns after a cyclical sell-off. The stock has been on a downward trend for months now, and it’s possible that we are nearing a bottom.

Unless you can stomach a lot of volatility, it’s better to wait for momentum to pick up towards the upside before entering industrial stocks.

Disclosure: At the time of publication, Stock Bros Research did not have a position in any of the securities mentioned in this article.

​Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Cummins Stock: Patience Required for Investors appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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