A SWOT Perspective on Tim Horton's

Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It's extremely difficult to evaluate a stock from all the different angles in just one article.  When giving a bull argument, I normally catch an ear-full from the bears.  When writing a bearish article, the bulls chime in.  It just comes with the territory.  You always run the risk of having an article be very readable and one-sided, or too long to read yet offering a balanced perspective.

But there is one approach that really helps us arrive at a balanced conclusion, and allows us to be brief at the same time.  It's called a SWOT analysis.  SWOT being an acronym standing for Strengths, Weaknesses, Opportunities, and Threats.  It's not original to me, but I'll use it if it will help me gain a balanced perspective.

One of my favorite companies right now is Tim Horton's (NYSE: THI).  How will they stand up to a SWOT analysis?  Here's what happened when I ran their most recent quarter through the SWOT grid.

Strengths

  • Tim Horton's dominates the Canadian coffee market with 80% of the market share.
  • Forward P/E of only 15.5
  • An aggressive, yet sustainable, growth plan.  In the most recent quarter, they opened 44 new locations in Canada and 22 in the United States.
  • One of the best reputations in same-store sales growth.  This most recent quarter also had same-store sales growth, despite there being fewer transactions.  Management sees this due to people buying not just coffee, but new menu items such as their panini sandwiches.

Weaknesses

  • An ongoing costly corporate reorganization
  • Brand awareness in the United States.  There's little doubt, if given the choice between Starbucks (NASDAQ: SBUX) and Tim Horton's, most Americans would choose Starbucks because they are more familiar with that brand.  (Buffalo NY aside...and maybe Cleveland)

Opportunities

  • They've signed a deal to open 120 locations in the Middle East over the next five years.  They are currently up to 18.  This is their first growth opportunity for Tim Horton outside of Canada and the United States.  If successful it could pave the way for more international growth.
  • They are entering the single cup coffee market for the first time this Christmas season.  They have an agreement with Kraft to make T-Discs for the Tassimo.  Tim Hortons is excited about this opportunity.  They have not entered this coffee sector in the past because they were waiting to get in on their terms with the brightest possibility.  This is that chance in their opinion.
  • Tim Hortons is operating at capacity at many of their restaurants.  This isn't good because they have to figure out how to get more people through their restaurants, or whether they should open more restaurants in existing markets or make existing restaurants bigger.  It's good that they have the business, but they have to figure out how to maximize the opportunity.

Threats

  • According to management, this company is affected by consumer trends.  Specifically, they see themselves fitting into people's discretionary budget.  Canada experienced a GDP contraction in August, something that isn't good for discretionary spending.
  • McDonald's (NYSE: MCD) in Canada has offered free coffee promotions time to time in an attempt to attract Tim Hortons customers.  Subway has also made an attempt at entering the coffee market.
  • They are searching for a new CEO.  Of course they want to find a someone who will be good, but really don't know until that person gets into the job.

Conclusion

When all these factors are considered together, I think it shows how strong Tim Horton's is as a company.  I was convinced that this was a good investment before.  I'm even more sold now.


thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's and Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend McDonald's and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus