TIM HORTONS INC. $53 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 157.4 million; Market cap: $8.3 billion; Price-to-sales ratio: 3.0; Dividend yield: 1.6%; TSINetwork Rating: Average; www.timhortons.com) operates 3,295 coffee-and-donut stores in Canada and 714 in the U.S. It also has five recently-opened outlets in the Persian Gulf.
The company’s new menu items, such as espresso-based coffee drinks, continue to be extremely popular. Warmer-than-usual winter weather has also spurred customer traffic.
These two factors pushed up Tim Hortons’ sales by 12.5% in 2011, to $2.9 billion from $2.5 billion in 2010. If you exclude the positive impact of foreign currency rates, sales rose 7.4% in 2011. Same-store sales rose 6.3% at its U.S. outlets, and 4.0% in Canada.
However, earnings fell 38.7% in 2011, to $382.8 million from $624.0 million. That’s mainly because the 2010 earnings included a $361.1-million gain on the sale of its 50% stake in a baking joint venture. The company used the proceeds to buy back $572.5 million of its shares. Because of fewer shares outstanding, earnings per share fell only 34.4%, to $2.35 from $3.58.
Tim Hortons also raised its quarterly dividend by 23.5%, to $0.21 a share from $0.17. The new annual rate of $0.84 yields 1.6%. The company plans to buy back a further $200 million of its shares over the next year.
The company plans to spend $220 million to $260 million in 2012, mainly to open 250 to 290 new stores. Tim Hortons can easily afford these investments: its long-term debt of $447.3 million is a low 6% of its market cap, and it holds cash of $126.5 million, or $0.80 a share.
The stock is up 25% in the past year, and trades at 19.3 times its forecast 2012 earnings of $2.74 a share. That’s a reasonable p/e ratio in light of the company’s iconic brand and high market share.
The recent dismissal of a $2-billion class-action lawsuit launched by franchisees, which accused the company of overcharging them for baked goods, also cuts its risk.
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