Analysts Bullish On Canadian Donut King Tim Hortons

Coffee and donuts from Tim Hortons Inc. (THI) continue to be a staple for many Canadian and with 2,711 locations in the country, the quick service restaurant chain has a 76% share of the coffee and baked goods market in this segment, according to UBS analyst Peter Rozenberg.

But with only 336 U.S. restaurants and plans for 500 by 2008, Tims’ growth strategy there will become more importance if business in its home market slows.

Mr. Rozenberg, who sees potential for an additional 1,022 locations in Canada thanks in part to the chain’s strong brand, production innovation and good value, has initiated coverage of Tim Hortons with a “buy” recommendation and C$42 price target.

This represents upside of roughly 19% from Thursday’s close of C$35.18.

“We think Tim’s is an exceptional business because of its strong brand, very profitable franchise income, strong cash flow, high returns, strong same store sales, and low-risk model; however, we think that U.S. profitability could take time to meaningfully improve,” Mr. Rozenberg said in a research note.

Irene Nattel at RBC Capital Markets has a C$41 price target and "outperform" rating on the stock.

In a research note, she called Tim Hortons a "rare breed: a mature company with a strong consumer franchise that nonetheless has above-average earnings growth potential."

THI 1-yr chart: