Watch: Couche-Tard, Air Canada and Gildan

Traveler return is accelerating for Air Canada, improving the near-term outlook, but a possible recession next year and rising fuel prices are dampening that of 2023. (Photo: Getty Images)

What to do with Alimentation Couche-Tard, Air Canada and Gildan Sportswear titles? Here are some analyst recommendations that prices are likely to move in the near future. Note: The author may have a completely different opinion than the one expressed.

Alimentation Couche-Tard (ATD, $53.38): Solid results, but costs are rising

In a preliminary remark, Irene Nattel from RBC Capital Markets was satisfied with the results of the fourth quarter, although they fell short of expectations in various respects.

Adjusted earnings per share rose 6% to $0.55 per share, three cents above consensus but seven cents below estimates.

“The results reflect Alimentation Couche-Tard’s fundamental strengths in a challenging environment characterized by inflation and rising gas prices in the United States and dislocations in Europe,” she wrote.

Store gross profits in dollar terms rose 4.7%, a rate in line with its expectations, but same-store sales and margins by segment paint a more mixed picture.

In addition, the amount of gasoline sold fell in all markets. The decline in the USA was 1.7%. In North America, gasoline margins at the pumps were significantly better than expected, but in Europe, the “distortions” caused by the war in Ukraine were larger than expected.

The analyst attributes the discrepancy between its forecast and earnings to the 18 percent increase in total cost of ownership including utilities in Europe. The entire cost structure is under inflationary pressure as the company reinvests in its network and marketing. Result: Operating income of $1.1 billion is flat, while Irene Nattel had forecast it would reach $1.24 billion.

“Couche-Tard remains strongly focused on executing its strategy to grow same-store sales and margins to meet its $5.1 billion operating profit target in 2023 through high-margin gasoline at the pump ‘ says the RBC analyst.

With strong gasoline margins at the pump, the company has achieved the “internal” part of its pledge to double its operating profit to $5.1 billion a year ahead of schedule, she reports.

The key question for investors, which is likely to dominate this morning’s conference call, is the company’s ability to sustain those earnings in the face of rising cost inflation and rising gas prices at the pumps as a possible recession looms, Irene Nattel acknowledges. It reiterates that the company has the scale, economies of scale and sourcing expertise to capture market share from its competitors.

Additionally, the company is increasing its dividend by 25% and actively buying back its stock. After cutting $1.9 billion from its stock in 2022, the company has already repurchased $429 million of its stock in 2023.

Irene Nattel points to further successes for 2022: return on equity of 21.8% and return on invested capital of 15.4%. The balance sheet also remains in good shape. Net debt is 1.39 times operating income despite the size of the share buybacks.

Prior to the morning conference call, the analyst didn’t touch his buy rating or $77 price target.

Couche-Tard’s stock is flat since early 2022 as the S&P/TSX index fell 9.4%.

Air Canada (AC, $17.30): A cover full of air holes

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