TIM HORTONS $49.70 - Toronto symbol THI

TIM HORTONS $49.70 (Toronto symbol THI; TSINetwork Rating: Average) (905-845-6511; www.timhortons- .com; Shares outstanding: 153.4 million; Market cap: $7.6 billion; Dividend yield: 1.7%) operates 3,365 coffee-and-donut shops in Canada, 755 in the U.S. and 18 in the Middle East.

The company’s new menu items, such as lattes and panini sandwiches, continue to sell well. In addition, Tim Hortons now offers free Wi-Fi Internet access at its Canadian outlets. That’s helping it compete with bigger fast-food chains like McDonald’s, which is aggressively promoting its coffee in Canada.

These factors pushed up Tim Hortons’ sales by 10.3% in the three months ended September 30, 2012, to $802.0 million from $726.9 million a year earlier. Same-store sales rose 2.3% at its U.S. outlets and 1.9% in Canada.

Earnings rose 2.0%, to $105.7 million from $103.6 million. Because of fewer shares outstanding, earnings per share rose 5.3%, to $0.68 from $0.65. However, costs related to a reorganization of the company’s head office and its search for a new chief executive officer cut its earnings by $0.04 a share. If you disregard these expenses, the latest earnings would have matched the consensus estimate.

Tim Hortons is now taking advantage of fastgrowing interest in home-coffee systems. It currently has an agreement with Kraft Foods to make and sell plastic cups, called T-Discs, filled with Tim Hortons coffee. Kraft’s Tassimo beverage machine uses the TDiscs to brew a fresh single cup.

The stock trades at 16.3 times the company’s forecast 2013 earnings of $3.05 a share. That’s reasonable in light of Tim Hortons’ strong growth prospects.

Tim Hortons is a buy.

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