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(CHRIS YOUNG)
(CHRIS YOUNG)

Eye on Equities

Tim Hortons stock ready for a coffee break: RBC Add to ...

Tim Hortons Inc. shareholders enjoyed a scrumptious year of returns in 2010, thanks to better-than-expected financial results, an unexpected windfall from the sale of its bakery joint venture and a stepped-up share buy-back program. Those factors, plus improved performance in the United States, drove a 28-per-cent appreciation in the share price.

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But, according to RBC Dominion Securities Inc. analyst Irene Nattel, the shares may be running on a little too much adrenaline.

Ms. Nattel says the stock is trading at 18 times forecasted 2011 results. That seems reasonable, given that the flow of funds into economically sensitive names over the past three months has pushed the valuation of stocks in the fast casual segment from 19.5 times to 21.8 times 2011 estimated earnings. But that doesn't give a full picture, she contends, as average valuations are slightly skewed because of substantial multiple expansion in more economically sensitive names (Chipotle and Panera, for example). By comparison, McDonald's, the more stable industry benchmark name, is trading at only 14.5 times forecasted 2011 earnings per share.

Downside: Ms. Nattel downgraded the stock to "sector perform" from "outperform." But she kept her price target of $45 unchanged, contending that the company has a strong strategy and good management. Ms. Nattel continues to expect average annual EPS growth of 16 per cent at the company, with ongoing same-store sales growth close to 4 per cent in both Canada and the US.

Torstar Corp. stock price should increase if the CRTC approves BCE's proposed acquisition of CTVglobemedia, said Canaccord Genuity analyst Aravinda Galappatthige. The proceeds would reduce Torstar's debt to negligible levels and drive the case for a dividend increase of as much as 100 per cent, he argued. A decision is expected in the second quarter.

Upside: Mr. Galappatthige upgraded Torstar to "buy" from "hold" and raised his target price to $16.55 from $15.70.

Western Copper Corp. is trading at a steep discount to its peers and is a likely candidate to partner with a foreign interest in need of new copper supplies or be taken over by another party, said CIBC World Markets Inc. analyst Ian Parkinson. The company's flagship Casino project alone represents 9.9 billion pounds of copper supply.

Upside: Mr. Parkinson initiated coverage of the stock with a 12- to 18-month price target of $6.60 and a "sector outperformer" rating.

CI Financial Corp. stock underperformed its peers in 2010 and so far this year, despite the company being well positioned to capture growth, said Canaccord Genuity analyst Scott Chan. The company's acquisition of Hartford Investments will add $200-million in net sales in 2011 and there's a good chance CI will make further acquisitions this year, he said.

Upside: Mr. Chan upgraded CI to "buy" from "hold" and increased his 12-month target price by $1.50 to $25.

Supply and demand fundamentals are improving in paper markets, brightening prospects for Catalyst Paper Corp. , said Dundee Capital Markets analyst Richard Kelertas. Further capacity reductions are expected in the industry at a time when demand from developing nations is on the upswing. Catalyst also has a substantially improved cash position, he added.

Upside: Mr. Kelertas increased his target price by 20 cents to 55 cents per share.

 

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