Goldman Removes Tim Hortons From Buy List on Valuation

Strong same-store sales have driven healthy operating profit growth and stable cash flow at Tim Hortons Inc. (THI) – features investors clearly like in a restaurant stock. Tim’s shares are up 24.5% since Goldman Sachs added it to its Americas Buy List in late October 2006. This compares to an 11% gain for the firm’s restaurant index and the same for the S&P 500 during the period.

While the company remains a favored name due to its defensive characteristics as a dominant name in the breakfast business and the Canadian market as a whole, strong sales drivers this year and next, as well as capital management opportunities, Goldman has reduced its rating from “buy” to “neutral” and removed it from its list given the gains its shares have made.

The firm sees more upside in Darden Restaurants Inc. (DRI).

Analyst Steven Kron has a US$35 price target on Tim’s shares and continues to believe they deserve a premium-to-group multiple.

THI vs. DRI 1-yr chart: