CIBC Capital Markets has raised its 12-month price target for Alimentation Couche-Tard on the premise the company is poised to see expanding fuel margins amid record-high gas prices.

In a note to clients on Monday, Equity Research Analyst Mark Petrie raised his fourth-quarter earnings per share estimate for Couche-Tard “to reflect stronger-than-expected industry fuel margins, partially offset by higher credit card fees due to higher gas prices.”

Petrie now expects the company to report earnings of $0.51 per share, up from his previous estimate of $0.39 in earnings per share.

He increased his price target for the fuel retailer to $64 from $56 “due to an increase in our long-term U.S. fuel margin assumption” and maintained his recommendation on the stock at outperform (the equivalent of a buy.)

He added that fuel demand destruction hasn’t become a problem yet for the company since data shows demand has been mainly falling in U.S. regions where gas prices are above US$5 a gallon.

“Apart from the West Coast (about 12 per cent of [Couche-Tard’s] U.S. network) where gas prices are above US$5.50, the majority of [the company’s locations] are in regions where gas prices currently sit between US$4.60 and US$4.90,” Petrie wrote.

“Thus, we do not expect demand destruction is a material issue yet.”

Petrie also said he thinks Couche-Tard’s merchandise sales will remain robust despite the rising cost of living.

“While higher gas prices could be a headwind for merchandise sales, history has shown us that inside sales have remained resilient even during recessionary periods,” he said.

He said the retailer’s recent initiatives with prepared foods and single-serve beverages will help it navigate future uncertainty around gas prices.

In 2020, the retailer announced its “Fresh Food, Fast” initiative, with the goal of bringing more prepared foods to its stores. It has since implemented the program in over 3,200 locations.

In Couche-Tard’s third quarter financial results, Chief Executive Officer Brian Hannasch said the company was finding success with its prepared food offerings.

“Same-store merchandise sales were particularly strong in Europe as well as in the U.S. with our freshly prepared food programs and packaged beverages among the main drivers of growth,” Hannasch said in the release.

Couche-Tard is set to release its fourth quarter and fiscal year financial results on June 28.