Tim Hortons Inc.
) announced a lot of good news for investors on February 23. It (1)
reported better than expected fourth quarter results, (2) announced
a $200 million stock buyback, and (3) increased its dividend by
This prompted analysts to revise their estimates higher for both
2012 and 2013. It is a Zacks #2 Rank (Buy) stock.
Tim Hortons is a quick-service restaurant company with 4,014
locations, including 3,295 in Canada, 714 in the United States and
5 in the United Arab Emirates.
It is headquartered in Oakville, Ontario, Canada and has a market
cap of $8.3 billion.
Fourth Quarter Results
Tim Hortons delivered strong fourth quarter results on February 23.
Earnings per share came in at 65 cents, beating the Zacks Consensus
Estimate of 61 cents. It was a stellar 25% increase over the same
quarter in 2010.
Total revenues surged 21% to $779.8 million, well ahead of the
Zacks Consensus Estimate of $726.0 million. This was driven by a
solid 5.5% increase in same-store sales in Canada and a 7.2%
increase in the U.S.
Adjusted operating income was up 15% year-over-year as the company
was able to somewhat offset higher commodity costs with operating
Analysts have revised their earnings estimates significantly higher
following Tim Hortons' solid Q4 results. It is a Zacks #2 Rank
The Zacks Consensus Estimate for 2012 is now $2.74, representing
14% EPS growth over 2011. The 2013 consensus estimate is currently
$3.08, corresponding with 13% growth.
Analysts expect the company's solid same-store sales momentum to
continue in the near future. This, along with the company's plans
to eventually expand to 4,000 store in Canada, should drive
double-digit earnings growth over the foreseeable future.
Returning Value to Shareholders
Management has also made a couple of shareholder-friendly moves
lately. It announced on February 23 that it will repurchase up to
$200 million worth of shares (representing about 10% of the
It also announced on that day that it was raising its quarterly
dividend by 24% to 21 cents per share. It yields a solid 1.6%.
The company has a target payout ratio of 30-35% of net income, so
as long as EPS continues to grow, expect more dividend increases
down the road.
Although shares of THI don't look cheap, the valuation picture
still looks reasonable. The stock trades at 18.9x 12-month forward
earnings, in-line with its historical median. And it sports a PEG
ratio of 1.4 based on a consensus 5-year EPS growth ratio of 13.5%.
The Bottom Line
With rising earnings estimates, strong growth projections and
shareholder-friendly management, Tim Hortons offers investors a lot
Todd Bunton is the Growth & Income Stock Strategist for
and Co-Editor of the
Reitmeister Value Investor
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