Tim Hortons Grows While Market Slows

Tim Hortons pays a 13-cent quarterly dividend, equaling a yield of 1.5% with a modest payout ratio of 28%. The stock trades at a trailing earnings multiple of 19, a forward earnings multiple of 18 and a book value multiple of 5.1, 29%, 22% and 9.4% discounts to restaurant-peer averages. The stock trades at parity with its industry based on sales and cash flow per share. Although sell-side analysts are cautious about Tim Hortons, it's a reasonably priced and comparatively safe restaurant investment. In the past four weeks, eight researchers have increased their full-year 2011 earnings targets as two decreased their estimates.

An expected tally of $2.29 translates to a 2011 earnings multiple of 16. Although economic uncertainty is an ongoing concern, recent same-store sales gains, the ramping up of Cold Stone dual-venue locations and proceeds from the pending sale of Maidstone could be catalysts for the stock, which has rallied 16% in 2010, outperforming the S&P 500 by 22 percentage points. Tim Hortons carries $212 million of cash and $415 million of debt, equal to a quick ratio of 0.9 and a debt-to-equity ratio of 0.3.

The stock's largest owner, Fidelity Investments, which owns 8% of shares outstanding, boosted its stake in the latest quarter. Six of the 10 largest investors increased their holdings and 17 of the 30 largest investors amplified their bets, indicating modestly bullish sentiment from the stock's major owners. During the rapid correction of the past four weeks, with the S&P 500 falling 4.8%, Tim Hortons shares posted an eye-catching 3.8% rise.

-- Written by Jake Lynch in Boston.

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