Tim Hortons And McDonald’s Hoping For A Starbucks Stumble

By Benzinga | April 05, 2012 AAA

By Katey Stapleton, Benzinga Staff Writer
Coffee distributors far and wide are praying for Starbucks (NASDAQ:SBUX) to hit some type of snafu.

The coffee giant has noticeably dominated the market in recent weeks, forcing analysts to raise its rating/estimates and lower those of the competition. Within the last month, Starbucks stock has rallied over 16%. Meanwhile, shares of Tim Hortons (NYSE:THI) have traded roughly flat, moving up only 0.45%. McDonald's (NYSE:MCD) has actually dropped, as shares have tumbled 2.03%.

On the heels of an expansion agreement made between Starbucks and Green Mountain Coffee (NASDAQ:GMCR), the bean brewer extraordinaire has impressed its customers, the market and research firms with several positive announcements over the past month or so.

On Wednesday, Williams Capital Group took notice.

"On March 19th Starbucks opened their first retail locations for Evolution Fresh and Seattle's Best Coffee. Two days later, Starbucks entered the Ready-to-drink energy drink market, expanded their relationship with Green Mountain Coffee Roasters (GMCR - $48.18, Perform/Hold), and hosted their annual shareholders meeting, all on the same day. They also announced the development of the Verismo single-serve machine, made key strategic changes in the UK and France, and introduced new dessert items to be sold at retail. All these events occurred within the last three weeks. We view these events positively," Williams Capital Group commented in a research report, shortly after increasing its price target on Starbucks from $54 to $70.

Others seem to be taking notice to the many new attractions Starbucks has to offer, such as McDonald's, Dunkin' Brands Group (NASDAQ:DNKN) and Tim Hortons.

Goldman Sachs participated in grinding up the companies that are pitted against Starbucks, downgrading Tim Hortons and lowering its price target in the same report that it upgraded Starbucks in.

"We downgrade THI shares to Neutral from Buy. We still view the company in a positive light, and the primary reason for the ratings change is our view that currently, there are better Restaurant investment opportunities elsewhere. However, we are mindful of recent soft traffic trends in the company's home Canadian market as it is unclear if these trends are transient or driven by fundamental issues such as increased competition or impending saturation.

"Furthermore, unlike SBUX, THI would see almost no benefit from falling coffee prices given its 99% franchised operating structure," Goldman Sachs explained.

However, Goldman Sachs did set aside an individual report for Dunkin' Brands, which is holding strong against the competition with its dividend introduction - and more recently, its freshly announced deal with The Coca-Cola Company (NYSE:KO).

According to Zacks Equity Research, Dunkin' Brands will be serving Coca-Cola beverages in stores nationwide come August.

"Coca-Cola's popular beverages such as Coca-Cola, Diet Coke, Coke Zero and Sprite will be served in more than 9,400 Dunkin' Donuts cafes and Baskin-Robbins ice cream shops across US. Alongside, Coca-Cola will provide a range of juices, enhanced waters and energy drinks," Zacks.com reported.

Cleansing the consumer palate has become a game of who can introduce new beverages the fastest, made more competitive by the many products coffee chains are beginning to offer. One thing is for sure - caffeine lovers won't be facing a shortage any time in the near future.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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