TIM HORTONS $58.56 (Toronto symbol THI; TSINetwork Rating: Average) (905-845-6511; www.timhortons.com; Shares outstanding: 153.1 million; Market cap: $8.8 billion; Dividend yield: 1.8%) operates 3,468 coffee-anddonut shops in Canada, 807 in the U.S. and 29 in the Persian Gulf.
In the three months ended June 30, 2013, Tim Hortons’ sales rose 1.9%, to $800.1 million from $785.6 million a year earlier. Same-store sales increased 1.5% at its Canadian outlets and 1.4% in the U.S. Earnings per share rose 17.4%, to $0.81 from $0.69.
The company continues to benefit from new menu items it has recently introduced, such as panini sandwiches. It also raised its prices to cover higher ingredient costs.
U.S.-based activist investor Scout Capital Management now owns 5.5% of the Tim Hortons’ shares, and another investment firm, Highfields Capital Management, holds about 4%.
Tim Hortons has rejected these investors’ demands to slow its expansion in the highly competitive U.S. market and to transfer its real estate holdings to a new real estate investment trust, like Loblaw and Canadian Tire are currently doing.
However, it does plan to meet one of their demands: it will borrow $900 million and use the cash to buy back up to $1 billion of its shares. And while the company won’t slow its growth in the U.S., it will aim to expand through well-capitalized franchise operators that can handle multiple locations. That should cut its development costs.
The company has successfully grown its iconic brand on its own for many years. Still, these activist investors’ ongoing involvement continues to draw attention to the company’s strong prospects.
Tim Hortons is a buy.
