Tim Hortons Inc. (USA) (THI), Dunkin Brands Group Inc (DNKN): This Coffee Shop Gets a Shot of Caffeine

Page 1 of 2

The Canadian-based quick-service restaurant Tim Hortons Inc. (USA) (NYSE:THI) got a big vote of confidence from the Scout Capital Management hedge fund last week. Per an SEC filing, Scout now owns some 5.5% of the coffee company, and is now calling itself Tim Hortons’ second-largest shareholder (check out Scout’s top stocks).

Tim Hortons Inc. (USA) (NYSE:THI)

Scout Capital looks to find investment opportunities via special situations; it appears that Tim Hortons Inc. (USA) (NYSE:THI) could offer investors a special situation, having ineffectively used capital to generate shareholder returns. Earlier this year Highfield Capital also took an interest in Tim Hortons Inc. (USA) (NYSE:THI), buying up a 4% stake (check out Highfield’s top stocks).

What do hedge funds want from Tim Hortons?

Basically, these hedge funds will be pushing the company to unlock shareholder value; Scout plans to engage management to start a discussion concerning its capital structure, capital expenditure plan and stock-buyback program.

This includes exploring the possibility of expanding debt levels to either boost share buybacks or its dividend. The company already pays a 1.8% dividend yield, which is above many of its coffee-shop peers.

Highfield supports the use debt to fund capital returns, but also wants to see a halting of U.S. expansion. There were 804 Tim Hortons Inc. (USA) (NYSE:THI) restaurants in the U.S. at the end of 2012, concentrated along the Canadian border in New York, Michigan and Ohio.

The U.S. store problem is that that these stores have grossly under-performed their Canadian cousins. The U.S. stores brought in a measly $20,000 per store on average of operating profit last year, compared to C$182,000 for Canada-based stores.

In other news, Tim Hortons Inc. (USA) (NYSE:THI) is looking to improve performance with new menu items, such as the Panini and specialty coffee drinks, as well as increasing traffic with the redesign of stores — this includes focusing more on opening drive-through locations. The industry tailwinds for the company should be a rebounding economy in both the U.S. and Canada, but their could be a better way to play the coffee industry.

A better latte

Dunkin Brands Group Inc (NASDAQ:DNKN) and Starbucks Corporation (NASDAQ:SBUX) are two of Tim Hortons’ most notable competitors. Dunkin Brands Group Inc (NASDAQ:DNKN) has about 10,500 Dunkin’ Donuts locations and 7,000 Baskin-Robbins.

Dunkin Brands Group Inc (NASDAQ:DNKN) could be one of the great coffee growth stories, with opportunities to expand in the Western part of the U.S. and in international markets, namely Asia-Pacific. Revenue is expected to be up 7.2% in 2013 after an impressive 4.8% rise in 2012.

Over 85% of Dunkin Brands Group Inc (NASDAQ:DNKN)’s U.S. stores are concentrated in the Northeast part of the country, but about two-thirds of Dunkin’s new U.S. store openings are expected to be in the Western part of the country by 2015. And of course, no westward expansion would be complete without California, which will be a big part of the expansion plan.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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!