After rising more than 8% to C$30.78 following the announcement of its solid fourth quarter results on Friday, Tim Hortons Ltd. (THI) shares have lost some steam over the past two trading days, dropping back below C$30 in early morning trading Tuesday.
Scotia Capital analyst Turan Quettawala isn't surprised by the reversal, telling clients the stock got ahead of itself last week on safe haven sentiment and some short covering.
He wrote in a research note:
We think that the move is overdone considering that THI's guidance is on the weaker side. Although there is no doubt in our mind that THI's Canadian business is defensive, we believe that at 17x 2009E earnings (at a 3 point premium to McDonald's) this is fully reflected in the stock.
We see little reason to pay a significant premium to McDonald's (MCD) for THI with its U.S. business still in uncertain territory.
Mr. Quettawala maintained his "sector perform" rating and left his 1-year target price at C$35.