Tim Hortons: Will It Maintain Growth Through Recession?

| About: Restaurant Brands (QSR)

Tim Hortons Ltd.'s (THI) better-than-expected fourth quarter results are getting high praise from the Street and analysts are left thinking the iconic coffee retailer may be survive the economic recession with its growth profile in tact.

Irene Nattel, analyst at RBC Capital Markets, said:

Tim Hortons effectively managed consolidated revenue growth into profit margin expansion, highlighting the resilience of its brand franchise in Canada, the leverage inherent in its business model and ongoing focus on cost containment.

Ms. Nattel raised her 2009 same store sales forecast to reflect the lower end of Tim Hortons' new guidance for 2009 of 3% to 5% for Canada and flat to 2% for the U.S. The analyst now estimates Canadian same store sales growth of 3% up from 2%, and U.S. same store growth of 0%, up from - 1%.

She made positive note of Tim Hortons 11% dividend increase and its decision to change the nature of its buyback to a discretionary buyback. "[It] enables THI to opportunistically accelerate stock repurchases." she said, maintaining her "buy" recommendation, while raising her price target from C$34 to C$35.

UBS analyst Vishal Shreedhar cut his price target from C$36 to C$35 but also maintained his "buy" rating. He noted that the stock, down 12% over the past year, remains well positioned to outpace the TSX Composite, which is down 41% over the past twelve months.

He said in a note to clients:

We believe THI will continue to outperform given expectations for positive same store sales and EPS growth. We believe THI is a strong company supported by a strong balance sheet, high returns, defensive menu and a dominant market position in Canada.

Finally, Keith Howlett at Desjardins Securities maintained his "hold" rating and left his C$32 price target unchanged. He said keeping traffic will remain the challenge in 2009 across the entire restaurant sector, both here and across the border. But if anyone can do it, it might just be Tim Hortons.

He said:

Tim Hortons, with its everyday value proposition and low average cheque size, is as well-positioned for a weak economy as a restaurant chain could be.

With over half of its Canadian stores in Ontario, and with its US stores weighted to the industrial/automotive regions of Michigan, Ohio and western New York, many Tim Hortons customers have been in the midst of the economic storm for some time. Sales are still quite good. The company is financially strong. This is a quality company that should be able to grow EPS in 2009.