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This Restaurant Company Can Do Well in the Long Run

June 25, 2014 | About:
Vinay Singh

Vinay Singh

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Over the past several years, the health craze in the U.S. has forced many food industry organizations - both large and small - to reevaluate menu items in order to serve their morediverse and health-conscious customers. Tim Hortons (THI) is no exception - althoughin many respects, the company actually IS an exception in terms of "green" guidelines andnutritional yet tasty menu selections.

Doing well while also doing good can pay off for companies

Tim Hortons is both a developer and franchiser of quick-service restaurant locations that arepredominantly located in the U.S. and Canada. The company's primary offerings include a widevariety of coffee and espresso drinks, as well as home style soups, smoothies, wraps,sandwiches, and fresh baked goods.

One way that the company has differentiated itself is by conveying to consumers its understanding of the importance of good nutrition. With this in mind, it continues to evolve itsmenu in order to meet its customers' diverse and changing needs, as well as their desires formore healthy lifestyles.

In addition, those with health conditions such as diabetes - along with those who are on a low-fator vegetarian diet - are also accommodated by the restaurant. It is this attention to customers that has likely catapulted the company's income and revenue.

Likewise, Tim Hortons is also committed to environmental stewardship. It recently opened itsvery first Leadership in Energy and Environmental Design-certified restaurant in Hamilton, Oregon. There, customers can take part in seeing the firm's whole-building approach tosustainability in action.

Tim Hortons' sales and earnings have increased in each of the last three years, and based on aforementioned growth initiatives adopted by the company, this trend should continue. Analysts are also very upbeat, and have a compound sales growth estimate for the next five years of more than 10%. With a forward P/E ratio of less than 15, shares aren't selling for fire-sale prices, but they are certainly approaching an attractive risk/reward zone.

What's brewing with the competition?

In the world of coffee and baked goods, no discussion would be complete without the likes of Starbucks and Dunkin' Brands Group - both wellknown for their premium cafe drinks and bakery items.

Although Starbucks is definitely not known for its discount pricing, the company continues to post strong sales and profits - even in light of a still struggling economic environment. The world's largest coffee chain posted some impressive numbers for the U.S. segment in the most recent quarter. One reason for this may be the additional food and drink items the firm has included onits menu.

In addition, the company is also continuing to push membership in its loyalty program - addingapproximately 1 million new members from one-single promotion alone last year. This will likelyadd to the bottom line, as well. Overall, shares of Starbucks are anticipated by analysts to rise by more than 10% over the next 12 months.

Another biggie in the coffee and baked goods arena is Dunkin' Brands. This company, knownworldwide for its tasty doughnuts, has also added a variety of new menu items - primarily in the breakfast category - including hot sandwiches that can easily be eaten on the run.

While many companies in the fast-food industry continue to struggle, Dunkin' opened many newstore locations in 2012, and it even plans to add more this year. Yet, while the company hasposted positive upward-profit movement and return on equity, its risk exposure in the debt-management area has led several analysts to rate the stock a Hold. Dunkin’ Brands currently has almost $2 billion in long-term debt.

Just like any of its competitors, Tim Hortons will also still need to continue to both diversify itsproduct line and differentiate itself, in order to keep its revenue high going forward. The goodnews is that if consumers can find foods that taste good while still keeping in the relativelyhealthy realm, then it will likely be a win-win situation for all.

The bottom line

While offering what many may deem as high-carb items in a health conscious world, Tim Hortons has been able to accommodate customers with a diverse set of food-related wants andneeds. In addition, the company's high standards for environmental consciousness have alsohelped to boost its customer base, and thus its revenue.

Presently, the company pays a dividend of just over $1 per share, providing a dividend yield of 1.9% to its shareholders. As it is estimated by analysts that share price will rise by nearly4% over the next year, this company could be a nice play for both steady growth and incomeover time.


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