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Roll up in Tim Hortons shares a prelude to disappointment: analyst

Tim Hortons raises a cup to Canadian coffee lovers For National Coffee Day 

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

Shares in Tim Hortons Inc. today are extending their 4 per cent rally on Wednesday after a U.S. hedge fund demanded a shakeup of the iconic coffee chain.

Canaccord Genuity analyst Derek Dley thinks investors are setting themselves up for disappointment.

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"We note that many of the suggestions are initiatives that we have heard in the past, and as a result, we believe the shares' positive reaction appears unwarranted," he said in a research note.

The recommendations from Boston-based activist investor Highfields Capital includes a demand to boost shareholder returns by taking on new debt to buy back its shares. It also wants Tim Hortons to scale back its U.S. expansion plans, spin off or sell its distribution business, create a real estate investment trust to hold its property assets, and hire new directors with more financial experience. "Importantly, several of the suggestions appear unmanageable to us, and management has through past commentary also dismissed a number of the initiatives," Mr. Dley said.

He reiterated a "hold" rating and sees the stock easing back after the knee-jerk reaction to the news subsides.

"While there has been a lot of focus on potential value creation activities over the past month, we instead believe investors should remain cognizant of the company's slowing growth profile in Canada, increasing competition in the breakfast daypart, and relatively immaterial U.S. operations," said Mr. Dley.

The fund currently holds about 6.1 million shares of Tim Hortons, representing about a 4 per cent stake, according to Reuters. Highfields may face other obstacles in pushing through their recommendations. Other large, long-term investors, are happy with the company as it is.

"This business ain't broke and needs no fixin'," said Barry Schwartz, a portfolio manager at Baskin Financial, which owns roughly 130,000 shares in Tim Hortons, told Reuters. "The company is shareholder-friendly and has rewarded long-term investors with rising dividends and share buybacks, plus the stock performance since the IPO has been terrific," he said.

Target: Mr. Dley has a $50 (Canadian) price target. The average price target among analysts is $54, according to Bloomberg.

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Raymond James analyst Daryl Swetlishoff downgraded Canfor Pulp Products Inc. to "outperform" from "strong buy" because of a flat outlook on pulp prices and a lack of obvious near-term catalysts for the stock.

Canfor Pulp reported earnings a little ahead of expectations this week, due in part to lower costs amid less maintenance and increased production.

"Canfor Pulp has successfully implemented capital plans delivering cash cost reductions while NBSK (northern bleached softwood kraft) pulp prices moved upwards through the winter and spring," Mr. Swetlishoff said in a research note. "Unfortunately, with shipments to China declining year/year and continuing economic malaise in Europe, we could see a pause in pulp market upward trajectory in coming quarters."

Target: Mr. Swetlishoff maintained a $14.50 price target. The average target on the Street is $11.29.


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Bell Aliant Inc.'s strategy to turn around its revenue base is showing tangible results, positioning it to potentially grow sales in 2014 after many years of decline, said Desjardins Securities analyst Maher Yaghi.

He upgraded Bell Aliant to "buy" from "hold," commenting that the positive growth trajectory should lead to improved free cash-flow generation and earnings. He also agrees with management that the company should be able to make the necessary investment in fibre-optic technology without jeopardizing its dividend.

Target: Mr. Yaghi raised his price target by $1.50 to $28. The average target is $26.95.


Colabor Inc., a distributor of products to the retail and food-service markets, reported a greater-than-expected first-quarter loss this week amid weak sales and margins, sending its stock plummeting.

The poor results add to other negatives facing the company, including a loss of a major contract and an ongoing tax review, notes Desjardins Securities analyst Keith Howlett, who downgraded the stock to "sell" from "hold."

"Prior to the recent stock decline, we had thought Colabor's valuation was ahead of its earnings, but would be supported by the dividend while earnings 'grew into the valuation'," he said. But he now has concerns over the longevity or prudence of the dividend.

Target: Mr. Howlett cut his price target to $4 from $7.50. The average target is $5.35.


Talisman Energy Inc.'s first-quarter results once again missed the mark and underscore the need for the company to take drastic action to improve profitability, said CIBC World Markets analyst Andrew Potter.

Production was below Street expectations and management gave no material update on its plans to monetize assets.

Nevertheless, Mr. Potter sees potential in the stock for the future.

"We continue to see deep value in Talisman, with the stock currently trading at 68 per cent of risked net asset value," he said. "We continue to see a number of financial and strategy catalysts that should materialize over 2013."

Target: Mr. Potter maintained a $16 (U.S.) price target and a "sector outperformer" rating. The average price target is $14.26 (U.S.).

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

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