UBS Investment sweet on Tim Hortons stock

The equity team at UBS Investment Research like their doughnuts and coffee.

The Toronto firm describes Tim Hortons Inc. as "one of the most profitable restaurants in UBS's global restaurant universe."

The Oakville, Ont.-based firm has a high earnings before income tax (EBIT) margin of 23.9 per cent compared with the industry average of 16.8 per cent, UBS notes. The UBS team estimates that Tims could increase its regular dividend by 65 per cent from 31 cents to 51 cents and believes the doughnut giant may soon serve up a special dividend of $4 a share.

UBS has a "buy" rating on Tims' shares and a 12-month price target of $42. The stock closed yesterday at $35.24 on the Toronto Stock Exchange. Shares have been on a sugar high of late, climbing from the $28 range last fall.

Perhaps Frank Stronach and Gerry Schwartz should visit a Tims drive through. The doughnut maker has a stock market value about $5.8-billion (U.S.). In comparison, analysts estimate ailing auto giant Chrysler Corp. may be had for as little $4-billion.