THI Investment Analysis Report & Stock Research, Tim Hortons Inc.

Ockham's Rating/Recommendation Summary

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THI Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at THI through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 5 years are 4.00x and 2.60x respectively.

Utilizing this range we can see that THI’s current Price to Sales per share ratio of 2.64x is significantly below its average levels historically. In fact, with a current price of $33.53, THI is a full 21% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for THI.

THI Cash Earnings

As the old saying goes, "Cash is King!" We look at reported Cash Earnings, but the main emphasis of our analysis involves stripping out non-cash events such as depreciation from our cash earnings analysis. This helps us view the cash flows more clearly. Nevertheless, an analysis of Cash Earnings (both reported and otherwise) is absolutely pivotal to assessing a company's value, and currently THI is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for THI, the current level of Cash Earnings compared to its historical levels helps identify where THI is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 21.63 and a historical low Cash Earnings per share ratio of 14.08, an investor can relate where value becomes optimal.

Now that THI’s current price is $33.53 and its Price to Cash Earnings ratio is 14.84, we are very positive on its outlook from the cash earnings perspective. In fact, THI is now trading a full 17% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why THI has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

THI Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from THI against the historic high and low levels over an available data range. Because THI has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In THI’s case, the estimated annual dividend is $0.50 producing a current dividend yield of 1.49%. The highest dividend yield from THI in recent history was 2.10% while the lowest dividend yield was 0.36%. It's hard not to notice that THI pays a current dividend yield that is 21.14% above the historical median. This peaks our interest since our analysis looks favorably upon dividend yields that are greater than the historical median.