Analysts hike targets on Tim Hortons, applaud new CEO's actions

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Inside the Market's roundup of some of today's key analyst actions. This post will be updated with more analyst commentary during the trading day.

Analysts are liking the new moves announced Thursday at Tim Hortons Inc. by newly installed CEO Marc Caira. There's been at least one upgrade so far today and several analysts increased their price targets - and shares are reacting, setting a record intraday high of $60.81 in Toronto trading this afternoon.

Partly in response to activist investor pressures, the iconic coffee chain announced several initiatives as it reported better-than-expected quarterly results, including expanding its buyback plan by $900-million, increasing debt levels, and appointing new directors to its board. The company reported a 14 per cent rise in second-quarter profit but said same-store sales growth for the year should come in below earlier targeted ranges of 2 to 4 per cent in Canada and 3 to 5 per cent in the United States.

The changes were enough for Canaccord Genuity analyst Derek Dley to upgrade the stock this morning to a "buy" from "hold," while increasing his price target to $67 (Canadian) from $52.

"We are becoming more constructive on the stock following the announcement of shareholder friendly initiatives, despite still challenging fundamentals in Canada, which we believe will be overshadowed by the company's increased share buyback and reduction in U.S. spending," he said in a research note.

Dasjardins Securites analyst Keith Howlett raised his price target to $60 from $57 but reiterated his "hold" rating. "New CEO Marc Caira appears to be calm, cool, collected and hard at work," Mr. Howlett commented.

But he expressed concern that the earnings beat of 81 cents per share, ahead of the Street consensus of 74 cents and last year's 69 cents in the quarter, was mostly due to timing issues and believes some of these gains may be reversed in the second half of this year.

Raymond James analyst Kenric S. Tyghe applauded the company for taking a more aggressive stand on boosting future shareholder returns as he reiterated a $55 price target and "market perform" rating.

"What was incrementally positive on the call was what appears to be an increased sense of urgency to get the basics right, as a means to better address the macro and competitive challenges. There was no reference (of any consequence) to the weather, but rather to the fact that while there is a lot which Tim Hortons gets very right, there is simply too much that it's been getting too wrong, for too long. The false positive of long line-ups was recognized as symptomatic of pressing underlying issues which include the complexity (and bottle necks) that all the innovation pumped through the system creates (both for franchisees in managing their businesses, and customers at the POS), versus the envisaged share gains. A chronic lack of investment in monetizing the loyalty to Tim Horton's with a compelling loyalty offering, was also highlighted as an issue (Starbuck's continues to report traffic increases in Canada versus Tim Hortons decreases), although hardly news to the increasingly savvy Canadian coffee consumer," Mr. Tyghe said.

"The messaging from the call was the recognition that Tim Hortons needs to start leading from the front again, which while positive, will prove challenging in the current environment in our opinion. It appears that the Tim Hortons steady as she goes US mantra (as a consequence of which they continue to find themselves being outplayed with alarming frequency) is poised for much needed changes in strategy, formats, and markets under the new CEO Mr. Marc Caira," he said.

CIBC World Markets analyst Perry Caicco, meanwhile, reiterated his "sector outperformer" rating and $59 price target. Credit Suisse analyst David Hartley raised his price target to $49 from $43 but reiterated an "underperform" rating.

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CIBC World Markets analyst Paul Holden has upgraded CI Financial Corp. to "sector performer" from "sector underperformer" in the wake of the company reporting a 15 per cent rise year-over-year in earnings per share in its latest quarter.

"CI has managed to grow assets under management by 10 per cent year to date compared to only 3 per cent for IGM and -7 per cent for AGF. This is attributable to both better investment performance and net sales. We now expect this growth advantage to continue, and are valuing CI at 18x 2014E EPS versus 15.5x previously," Mr. Holden commented.

"We are making two key changes to our investment thesis: a) we are assuming that sales through Sun Life continue to grow rather than shrink; and 2) that CI's relative AUM growth justifies the premium valuation vs. peers. We continue to believe a takeout is unlikely near term."

Target: Mr. Holden raised his price target to $33 from $27.50.

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Canaccord Genuity analyst Derek Dley upgraded Canadian Tire Corp. Ltd. to "buy" from "hold" on the belief the retailer will continue to look for ways to increase shareholder value over the next 12 months.

Canadian Tire reported earnings per share of $1.91 for the second quarter on Thursday, better than last year's $1.84 and the Street consensus of $1.77.

It also announced that it is seeking a financial partner for its credit card services. "Terms or the potential structure of any agreement were not announced. However, we believe Canadian Tire will look to maintain the earnings stream out of the credit card business, which has driven growth in earnings over the last year while reducing its funding and liquidity requirements. As a result, we view the likelihood of a partnership agreement positively," said Mr. Dley.

Target: Mr. Dley raised his price target to $99 from $84.

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Other analyst actions today include:

Desjardins Securities downgraded Trinidad Drilling Ltd. to "hold" from "buy" but raised his price target to $10.75 from 9.50. It sees better upside in other oil services stocks.

Raymond James downgraded CAE Inc. to "market perform" from "outperform" and cut its target to $12 from $12.50, after quarterly earnings fell short of expectations.

Canaccord Genuity upgraded GLV Inc. to "buy" from speculative buy" and raised its price target to $4 from $3.75.

Canaccord Genuity upgraded Timmins Gold Corp. to "hold" from "sell" but cut its price target to $1.85 from $2.

For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities