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

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

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

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!