As Tim Hortons shares sink, RBC hikes price target

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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.

RBC Dominion Securities analyst Irene Nattel is taking an optimistic view of Tim Hortons Inc.'s latest quarterly earnings, boosting her price target even as the stock price sinks in afternoon trading.

Tim Hortons reported weak first-quarter same-store sales, falling by 0.5 per cent in Canada and 0.3 per cent in the U.S. But the coffee giant was still able to deliver 6.4 per cent growth in earnings before interest, taxes, depreciation and amortization and 8.1 per cent growth in earnings per share after one-time items are excluded, Ms. Nattel points out.

The number of register sales dropped, reflecting such factors as inclement weather, cautious consumer spending, and stepped-up competition. But overall financials were in-line with market expectations, she said.

Ms. Nattel notes that other companies in the same sector, such as McDonald's, have been trading at higher price-to-earnings multiples over the past three months, which suggests Tim Hortons has higher upside potential as well.

Tim Hortons this morning named Mark Caira, most recently an executive with Nestlé, as its new CEO. While Mr. Caira has extensive experience dealing with quick service restaurants from a supplier perspective and is very familiar with global players, he does not appear to have direct franchise system operating experience, Ms. Nattel commented.

But overall, Ms. Nattel is sticking to her thesis: "Tim Hortons is a mature company with a strong consumer franchise that nonetheless has above-average earnings growth potential, in our view," she said.

Tim Hortons shares closed down 2.6 per cent.

Target: Ms. Nattel raised her price target by $6 to $60 and reiterated a "sector perform" rating. The average price target among analysts is $54.43, according to Bloomberg data.

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CI Financial Corp. is delivering the best fundamental performance within the Canadian fund industry, but the current share price already reflects this, said RBC Dominion Securities analyst Geoffrey Kwan after the company released first-quarter earnings Tuesday.

CI Financial reported earnings per share that were just shy of the Street consensus, but net sales were better than forecast and the dividend was increased by 6 per cent. Overall, Mr. Kwan termed the quarter as "neutral" for the stock and maintained a "sector perform" rating.

With the stock's recent rally, he now sees less potential for a takeover of the company and thinks CI Financial's appetite for a share buyback has decreased.

"Given the strong share price performance as of late, which may have been in part due to investors factoring in a potential of a takeover of CIX by Scotiabank (which owns 37 per cent of CIX), we believe a takeover of CIX is less likely, or if it is completed, the bid premium to the current share price is likely to be limited," he commented.

GMP Securities analyst Stephen Boland was sounding more upbeat about the company's prospects, reiterating his "buy" rating.

"CIX remains a solid investment due to the firm's consistent ability to maintain strong fund performance and generate strong free cash," Mr. Boland said. "We believe with the company under-levered, dividend increases and stock buybacks will be a regular occurrence."

Target: Mr. Kwan raised his price target by $1 to $29. Mr. Boland hiked his target by $2 to $30. BMO Nesbitt Burns analyst John Reucassel raised his by $2 to $31. CIBC World Markets analyst Paul Holden raised his target by $2.50 to $27.50. The average target on the Street is $29.98.

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Analysts are cutting their price targets on WestJet Airlines Ltd. after the company warned on Tuesday that it was likely to earn less revenue from every seat in the coming quarter, which sent its share price into a dive.

Plans to increase capacity in the Canadian airline industry have picked up considerably in recent months, and analysts' fears that this will lead to downward pressure on ticket prices appeared to be validated by WestJet's comments Tuesday that second-quarter revenue per available seat mile was likely to decline moderately.

"The Q1/2013 results reaffirmed several of the concerns we had with regards to increased capacity coming on line and the potential that lower yields would be required to stimulate traffic," commented RBC Dominion Securities analyst Walter Spracklin. "While we consider the airline industry to be in much better financial shape than in prior periods, we recommend investors take profits in the sector and await a better re-entry point."

CIBC World Markets analyst Kevin Chiang downgraded WestJet to "sector performer" from "sector outperformer," citing valuation concerns. "While we continue to have a favourable bias towards WJA given is earnings growth story, there is also some downside risk to consider given the softening economy and increasing pricing competition," he said.

Target: Mr. Spracklin cut his price target to $23 from $27 and reiterated a "sector perform" rating. Mr. Chiang cut his price target by $1 to $27. The average target on the Street is $26.86.

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Raymond James analyst Andrew Bradford upgraded Essential Energy Services Ltd. to "outperform" from "market perform" after the company reported better-than-expected first-quarter earnings.

He raised his earnings estimates on the company thanks to resumed growth from its multi-stage frac system technology and higher contributions from its coiled tubing service line.

"Our view is that improving sentiment surrounding key play developments in Canada could provide a catalyst for Essential's stock, which has been range bound between $2.00 and $2.20 since early February," he said.

Target: Mr. Bradford raised his price target to $2.60 from $2.45. The average target is $3.07.

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Momentum is building across virtually every business unit at The Walt Disney Co. and shareholders may soon be treated to dividend bumps or share buybacks, RBC Dominion Securities analyst David Bank said after reviewing the company's latest quarterly results.

"Visibility into revenue growth and margin expansion is increasing as management appears to be increasingly willing to offer greater clarity into Disney's many moving parts, giving investors greater ability to gain comfort through temporary bumps," he said. "With no "obvious" major M&A targets, Disney could be positioned to join peers in more aggressive return of capital to shareholders."

Target: Mr. Bank raised his price target to $71 (U.S.) from $63 and reiterated an "outperform" rating. The average target is $70.68.

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