Analysts Say Tim Hortons Doing Well, Despite Deteriorating Fundamentals

| About: Restaurant Brands (QSR)

Coffee and donuts might be a good snack for penny-pinching times, and that bodes well for Tim Hortons Inc. (THI). However the company’s shares seem to be fairly valued, according to analyst Turan Quettawala at Scotia Capital, who gives them a rating of neutral.

He wrote in a note to clients:

Tim Hortons is currently trading at 17 times and 15 times estimated per share earnings for 2008 and 2009, which is the high water mark versus both its U.S. restaurant peers and large-cap Canadian consumer comps. Tim Hortons’ Canadian business has defensive characteristics based on its strong brand and value orientation. However, we think that this is currently reflected in [its] valuation.

He is predicting per share earnings of C$0.42 in the third quarter (compared with C$0.36 last year), in line with consensus.

Analyst Vishal Shreedhar of UBS Securities predicts per share earnings of C$0.41 in the quarter.

He said:

Tim Hortons has performed well, despite deteriorating fundamentals. [The chain] has continued to deliver positive same-store sales growth and positive operating income growth. We believe Tim Hortons will continue to outperform its discretionary peers. However, we expect near-term financial performance to soften due to a moderating  consumer.

We believe that the U.S. operations will be challenged for the near-term, given increasing competition, a weak brand, and a very difficult consumer environment. Our valuation reflects higher risk related to a weakening macro-economic backdrop.

The analyst will revisit his 2009 estimates after the quarter, he said. He maintained his buy recommendation and shaved his price target to C$36 from C$39.