The Hidden Opportunity In Tim Hortons Inc. (THI)

Page 1 of 2

It is with good reason that coffee has a second name as black gold. This simple bean powers the most fundamental capital: human capital. Let’s review a few of the most prominent publicly traded players in the coffee competition.

Tim Hortons Inc. (USA) (NYSE:THI)Starbucks Corporation (NASDAQ:SBUX) is a world-renowned coffee shop, but Tim Hortons Inc. (USA) (NYSE:THI) is an up-and-coming player. The latter company does not have the girth of its larger rival — but it does have a well-developed brand, decades of experience, and a small enough size that further expansion into the U.S. market will have a major impact on earnings. In addition to all of these factors, Tim Hortons trades at a more reasonable valuation than Starbucks.

SBUX Total Return Price data by YCharts

The Opportunity in Tim Hortons Inc. (NYSE:THI)

Tim Hortons is a Canadian coffee and quick service restaurant chain with room to expand. Canada is nowhere near the size of the U.S., with a small population around 35 million. As of Jan. 1 of last year, the company had 3,295 restaurants in Canada, and only 714 in the U.S.

In Q3 2012, Canada generated $473.6 million [CAD] in operating income, while its U.S. operations generated $11.8 million [CAD]. In the first three quarters of 2012, the company opened 44 new stores in the U.S. It posted U.S. same-store sales growth of 2.3% in Q3 — 40 basis points higher than Canadian same-store sales growth in the same time period. In Canada, the company is already a dominant firm, and over the coming decade, it will be forced to venture deeper into the U.S. if it wants to achieve significant growth.

The firm has good financials, with a total debt-to-equity ratio of 0.4, a profit margin of 13.1%, and a gross margin of 28.4%. Its ROI of 24.8% is also respectable. The company trades at a P/E ratio of just 19.4, which is cheap considering the positive long-term growth profile.

Tim Hortons has already developed a nationally recognized brand name in Canada, and with determination, it will be able to do the same in the U.S. For long-term investors, Tim Hortons is a good company to watch, as it expands its operations and continues to operate within its core competencies of quality hot food and coffee.

Starbucks Corporation (NASDAQ:SBUX)‘ Long Term Outlook

Success can cause many problems and headaches. Starbucks is not in this territory just yet, but over the coming decade, it will have to ask itself a number of hard questions. In 2013, the Americas and Europe, Africa, and the Middle East [EMEA] net store number will grow by 5% while China and Asia Pacific has a goal of 18% unit growth rate.

Asia and China specifically are currently the world’s growth stories. Wages continue to grow, and soon China will soon face competition from other manufacturing centers which are closer to some of the world’s biggest markets. Coupled with negative demographic headwinds, China’s future growth is not as rosy as before.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!