Thanks to rough weather and intense competition, it has been
extremely tough for the restaurant industry as of late. Many names
in the space have been clobbered on the sales front, and have seen
their share prices slide as a result.
While this trend has impacted many U.S.-focused restaurants, it has
also hit Canadian firms too, as many of these companies are dealing
with the same trends. This is particularly the case for one of
Canada's most famous chains;
Tim Horton's (
Tim Horton's in Focus
THI is an Oakville, Ontario-based quick service restaurant chain
focusing on specialty drinks, sandwiches, and other prepared foods.
The firm has over 3,500 locations in Canada, while it has nearly
1,000 in other nations with the vast majority of those
international restaurants setting up shop in the U.S.
The firm has been expanding at a feverish pace, but many don't seem
to be buying the potential of this growth trend, and are looking
for more dividends or buybacks instead. While THI had a decent
sized share buyback, expansion looks to continue unabated and the
cost of this expansion could hit earnings in the near term.
Additionally, heavy competition from big players like
on THI's home turf of Canada is leading many consumers to other
stores, or forcing Tim Horton's to compete on value. These trends
are obviously not good for profits in the near term, and management
has recently guided earnings a bit below the broad analyst
consensus, a situation which has forced many who are tracking this
stock to revise their estimates lower.
Declining Estimates for THI
In just the past week, two estimates for THI earnings for this
quarter have gone lower, helping to move the profit consensus from
67 cents a share a month ago, to its current level at 62 cents a
share. Now, the company looks to have a growth rate of just 2.3%
(year-over-year) for the quarter, though the real damage looks to
be in the current and next year time frames.
In these periods, estimates have been drastically cut, pushing the
consensus earnings expectation far lower. The consensus for the
full year has fallen from $3.20/share 30 days ago to just
$2.93/share today, while the next year consensus has dropped from
$3.47/share to only $3.24/share right now, producing year-over-year
growth rates of, respectively, just 8.1% and 10.5%.
Given the rough trend for THI and the prospect of increased
competition in its top market, investors shouldn't be surprised to
note that THI has recently fallen to a Zacks Rank #5 (Strong Sell).
So, we are looking for more underperformance from this company, and
especially if big competitors find a way to steal share from Tim
Horton's in Canada.
As we discussed earlier, the
retail restaurants industry
is looking quite unfavorable overall, as the space is currently
ranked in the bottom 20%. In fact, at time of writing, six other
companies (out of 45 in total) have #5 ranks in this space.
There is, however, a top ranked company in the space,
Famous Dave's (
. This firm has soared to a #1 rank from a #3 rank in just the past
week, and given its strong history of beats and high growth
prospects, this could be a better way to play the restaurant space
in the near term.
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