(Picture: courtesy)
What to do with the titles of Alimentation Couche-Tard, Lion Electric and Aritzia? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed.
Couche-Tard (ATD, $60.50): a promising first foray into the express car wash industry
Martin Landry of Stifel GMP welcomes the first purchase of a chain of 65 independent express car washes in the United States that might serve as a platform to consolidate this still fragmented $10 billion industry.
The value of the purchase of True Blue Car Wash has not been disclosed, but the analyst can already say that the transaction will be modestly profitable for Couche-Tard.
This new growth initiative is attractive to him because Couche-Tard is already familiar with the car wash industry thanks to the 2,500 car washes that its Circle K chain already operates.
This complementary breakthrough offers cross-selling potential as approximately 85% of True Blue’s Rainstorm and Clean Freak car washes are within three miles of a Circle K convenience store. Circle K free to customers directing them to Couche-Tard convenience stores, gives the example of the analyst.
In addition, express car washes require less labor and therefore generate better margins than establishments offering services. Martin Landry cites operating margins of over 30% at 420 chain Mister Car Wash (MCW, US$9.51) which is another independent car wash industry consolidator alongside Driven Brands (DRVN, US$26.90).
Finally, True Blue offers a subscription service of US$20 to US$55 per month which provides half of its income. The “fast-pass” service reportedly has 170,000 members. “These recurring revenues mitigate the effect of seasonal turnover,” adds the Stifel GMP analyst.
In the longer term, these car washes separate from gas stations should also in principle suffer less from the possible decline in demand for gasoline at the pump, also suggests Martin Landry.
This minor expansion does not change the giant’s outlook. The analyst renews his buy recommendation and his target price of $68, or 19 times the profit he expects in 2024.
