TIM HORTONS INC. $49 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 154.5 million; Market cap: $7.6 billion; Price-to-sales ratio: 2.5; Dividend yield: 1.7%; TSINetwork Rating: Average; www.timhortons.com) is the largest fast-food company in Canada, with 3,365 outlets that mainly serve coffee and donuts. However, the company is attracting new customers with other foods, such as sandwiches and soups.
Tim Hortons’ success in Canada is helping it expand in other countries.
For example, many Tim Hortons outlets now sell ice cream through the company’s alliance with U.S.-based Cold Stone Creamery. That helps them attract more customers in the afternoon and evening. As part of this deal, Cold Stone sells Tim Hortons coffee and other products in its upscale ice cream parlours. In addition, the company continues to build new stores in the U.S.; it now has 755 outlets in that country. Most of Tim Hortons’ U.S. stores are in states along the Canadian border, where they can attract cross-border shoppers.
The Persian Gulf is another growth area. In 2011, Tim Hortons entered into a franchise deal with Dubai-based Apparel Group. Under this deal, Apparel has opened 18 stores in the region so far. It aims to open roughly 100 more in the next four years. Teaming up with well-established local companies cuts the risk of expanding in unfamiliar markets.
The stock trades at 18.3 times its likely 2012 earnings of $2.68 a share. That’s a reasonable p/e ratio in light of the company’s iconic brand and high market share. The $0.84 dividend yields 1.7%.
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