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The shadow of Paul House, chief executive of Tim Hortons, is cast on the wall as he speaks at the iconic coffee chain's AGM in Toronto on May 10, 2012. (Chris Young/The Canadian Press)
The shadow of Paul House, chief executive of Tim Hortons, is cast on the wall as he speaks at the iconic coffee chain's AGM in Toronto on May 10, 2012. (Chris Young/The Canadian Press)

Inside the Market

Tim Hortons, Groupon smacked with downgrades Add to ...

Inside the Market's roundup of some of today's key analyst actions

Analysts are growing more cautious on the outlook for Tim Hortons Inc. after the coffee and donuts chain reported disappointing same-store sales this week.

BMO Nesbitt Burns analyst Peter Sklar downgraded the stock today to "market perform" and cut his price target to $53 from $59. UBS analysts reduced their target to $51 from $56, while maintaining a "neutral rating."

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"The recovery that we were anticipating in same-store sales from the depressed level of Q2/12 did not materialize, with continued declining traffic in Q3/12," Mr. Sklar said in an analyst report today. "Overall, SSS in Canada has now clearly decelerated and it is unclear whether the slowdown was due to economic stress on the consumer, heightened competition, or possibly capacity constraints. It was likely some combination of all three."

Perhaps more worrisome for Tim Hortons investors, Mr. Sklar doesn't see that situation turning around any time soon.

"While the company has a number of new menu items and other initiatives (double-lane drive through), we do not see these projects being capable of meaningfully re-accelerating SSS over the next number of quarters," he said.

UBS analysts, meanwhile, think Tim Hortons will miss its own forecasts this year for same-store sales growth, commenting that it'll be an uphill battle to improve same-store sales in the current environment.

"We estimate full-year 2012 SSSG in Canada will fall below guidance of 3-5 per cent. Unless consumer confidence dramatically improves in remainder of 2012, we expect management’s guidance for 2013 will likely be more conservative," he said.

Management has responded to intensifying competition by highlighting more value-oriented menu items and introducing promotions that bundle items together, such as a breakfast sandwich and a coffee. But price discounting offsets some of these benefits, UBS said.

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JPMorgan has downgraded Cisco to "neutral" from "overweight" while slashing its price target to $17 (U.S.) from $21 a share. "We...expect 2013 to be a tough year as macro pressures persist," Marketwatch quoted analyst Rod Hall as saying in a note to clients.

Economic gloom in Europe and weak demand among enterprise and government sectors has hurt sales at Cisco. The stock is nearly flat in trading this morning.

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Morgan Stanley downgraded Groupon to "equal weight" from "overweight" today after the online coupon site missed third-quarter revenue expectations late Thursday. 

"While we are proponents of the company's long-term position within the local eCommerce landscape, the path to executing on this vision will take longer than expected. We are downgrading due to slower growth and lower margins," Morgan Stanley analysts were quoted by MarketWatch as saying.

Shares in Groupon are down 26 per cent this morning to $2.88 (U.S.), an all-time low.

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

Follow on Twitter: @eyeonequities

 

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