Has the hot Tim Horton's Inc. (THI) investment pot been brewing for too long?
While the coffee and doughnut chain delivered good Canadian results in the most recent quarter, the company announced last week it will close roughly 30 underperforming New England locations after years of struggle in the northeastern U.S. Now it will use less costly methods of rolling out the chain, such as opening kiosk-style locations and focus on value-based combo menu items.
Analyst Vishal Shreedhar at UBS Securities wrote in a note to clients:
We view the modifications to be positive. However, we continue to expect weak U.S. results in the near-term given significant consumer pressure.
Comparisons will significantly ease starting next quarter, added the anlyst, who rates the shares a buy and maintained his C$36 price target.
Mark Basham, restaurant analyst at Standard & Poor's Equity Research, maintained his sell rating on the stock.
He wrote in a note to clients:
Our sell recommendation reflects a Canadian economy likely to enter a recession, as the export and energy sectors, recent sources of strength, become weaknesses.
He lowered his target price on the U.S.-traded shares to $23 from $27 and his annual per share earnings estimate to $1.50 from $1.53 in 2008 and to $1.40 from $1.60 in in 2009.