Analysts on Tim Hortons' Growth Potential

| About: Restaurant Brands (QSR)

Earnings growth could slow at Tim Hortons Inc. (THI) in the coming quarters, analysts say.

Turan Quettawala at Scotia Capital visited Tim Hortons in-store kiosks at a number of Tops supermarkets in New York and projects modest revenues for the locations.

He wrote in a note to clients:

We were less than captivated by the self-serve locations as the purchase process was rather lengthy. Nonetheless, the locations are useful to boost brand awareness and a good defensive move against an entry by Dunkin Donuts.

He predicts same-store sales growth is likely to moderate in 2009 in Canada.

Price increases are less likely due to the weak economy and commodity price deflation. We continue to believe that the U.S. business will face difficulties in 2009 despite the store restructuring as same-store sales should be weak, further exacerbating franchisee relief.

Mr. Quettawala said the stock was adequately priced and maintained his "sector perform" rating and price target of C$35.

Analyst Keith Howlett of Desjardins Securities also said the shares are fairly valued at current levels. The analyst initiated coverage on Tim Hortons this week with a "hold" rating and a target price of C$32, saying he believes the chain has significant room for growth in Canada and the U.S.

He wrote in a research note:

We think that most investor anxieties about the U.S. business are misplaced. The U.S. business should reach sustained profitability in 2010 as it achieves scale. But he noted that “the weakening economies in Canada and the U.S. will result in a deceleration in earnings growth for Tim Hortons in the forecast period through 2010.

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