TIM HORTONS INC. $31 (New York symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 191.8 million; Market cap: $5.9 billion; WSSF Rating: Extra risk) operates over 2,600 stores in Canada that sell coffee, donuts and a variety of other foods. The company also operates roughly 300 outlets in the United States, mostly near the Canadian border. Franchisees operate about 97% of its outlets.
The company was a wholly owned subsidiary of Wendy’s International Inc. until March 2006, when Wendy’s sold 17.25% of its Tim Hortons’ shares to the public at $23.16 each.
In September 2006, Wendy’s handed out its remaining 82.75% stake to its own shareholders as a tax-deferred special dividend.
In the three months ended September 30, 2006, the company earned $0.27 a share, down 34.2% from $0.41 a year earlier (Tim Hortons reports its results in Canadian dollars; $1 Cdn. = $0.85 U.S.).
The company blamed the drop on higher taxes and the start-up costs of a new distribution facility. Revenue rose 7.1%, to $413.6 million from $386.1 million.
A big part of Tim Hortons success is its ability to introduce innovative new products. A good example is its iced cappuccino drink, which helped increase summertime sales.
Other products such as submarine-style sandwiches and hot breakfast sandwiches have helped Tim Hortons overtake McDonald’s as Canada’s largest fast-food chain in terms of sales.
Despite strong competition from more-established companies like Dunkin’ Donuts and Starbucks, Tim Hortons aims to open 200 outlets in the U.S. over the next three years.
The stock shot up to $33 on its first day of trading, but fell to $24 in August 2006. It now trades at 26.2 times the $1.39 Cdn. it will probably earn in 2007. The $0.28 Cdn. dividend yields 0.8%.
Tim Hortons is a buy.