Eat well, chew slowly
We are bullish on Restaurant Brands International Inc. (QSR) but recognize the vulnerabilities. QSR stocks stumble on Omicron news, making it a buying opportunity.
Do not swallow QSR shares. Accumulating them between $ 50 and $ 50 in stages will likely pay off and reduce risk.
The 52 week high was $ 71.12. The stock price recently fell to $ 58.60. The stocks have an implied rise of 24.68% if the price hits $ 77, as we think. At a minimum, their implied rise is 13.57% when they hit the consensus average price target of $ 66.69.
$ 47 is the low price consensus. It is very unlikely that it will drop that much. Short-term interest stands at a slight 2.6% and the share price is not volatile (Beta = 0.62).
QSR actions have shown remarkable sustainability throughout the pandemic. They topped $ 78 in 2019 before collapsing to $ 28 in March 21. QSR quickly recovered. Shares returned to $ 69 on June 21.
Seeking Alpha has published six bullish articles on the QSR in 2021. Wall Street is bullish. QSR’s Quant rating is 16 out of 38 in the fast food industry. Timeliness sentiment is 100% bullish on the QSR but only 61% bullish on the fast food sector. The average week sees around nine media articles on QSR, but 14 per week is the recent tally.
Six months of Factor Grades show that the company is progressing solidly.
Source In search of the alpha
Brand preference is strong
Restaurant brands Int. is a holding company of “Four of the Most Popular Brands”. 3G Capital Partners owns about a third of RBI and brings seriousness to QSR.
Source International restaurant brands
The company owns or franchises approximately 5,000 Tim Hortons, 18,700 Burger Kings, 3,500 Popeyes restaurants and 1,200 Firehouse Subs locations that it purchased in November 2021. Its global footprint includes outlets in approximately 100 countries.
Income has grown steadily over the past four years. It fell in fiscal year ’20 to $ 4.97 billion. Revenue was $ 5.6 billion in FY19 and $ 5.3 billion in FY18. Revenue reached $ 1.5 billion in FY18. third quarter 21 (+ 11.8% year-on-year). The return on equity for the last twelve months reached 26.93%. The net margin stands at 13.51%. Fast food restaurants have an average profit margin of 6-9%.
Estimates are that revenue will be + $ 5.7 billion in fiscal year ’21. The company exceeded EPS estimates in the first three quarters of fiscal ’21. We are forecasting a 14.7% rise in profits this year.
Another reason to buy is the attractive dividend yield of 3.66%. QSR’s dividend yield places it in the top 25% of dividend paying stocks. RBI has increased the dividend for seven years. Its payout rate is high at 87%. We expect it to drop to ~ 70% this year. SA improved the dividend ratings. The next results announcement date is February 10, 22.
Source In search of the alpha
Another caveat for investing has to do with debt. The company has nearly $ 13 billion in debt. He holds $ 1.76 billion (TTM) in cash and + $ 4 billion in equity. Liabilities exceed assets as a whole. Debt is not well covered by operating cash flow, recognizing this vulnerability.
Taste improves as debt levels decrease relative to income. RBI is worth over $ 28 billion and can easily raise capital. Free cash flow is a normal 67% of EBIT. Debt is a sign of risk as an investment, but not a red flag.
On a positive note, hedge funds bought 220,000 stocks in the last quarter.
The sum of its parts
Frankly, the conditions for 2022 are too tenuous to estimate revenue, income, and EPS. Supply chain issues, emerging variants of COVID, labor shortages, and demands for wage and price increases are a web of vulnerabilities.
To thrive in the restaurant business, owners must be nimble and innovative. Restaurant businesses with high levels of customer satisfaction like Popeyes will get loyal customers.
Popeyes introduced a chicken sandwich in 2019. Some Popeyes were selling 1,000 a day. Popeyes canceled a scheduled advertising campaign. Comparable store sales climbed + 10%, third quarter 19 and fourth quarter sales increased 37.9% year-on-year.
Firehouse Subs generates $ 1.1 billion in annual revenue. This is an increase of approximately 20% in comparable sales over the past two years and approximately $ 50 million in Adjusted EBITDA in 2021. FS has a reputation for delivering a high quality menu.
Tim Hortons serves 2 billion coffees per year. Restaurants generate nearly $ 9 billion in annual revenue. Coffee sales are 4x or more of Starbucks’ main Canadian division (SBUX). 92% of Canadians aged 19 to 34 ate there. Tim Hortons contributes 61% of Restaurant Brands Int’s sales. Burger King contributes 31%.
Burger King is the second largest fast food restaurant chain. It is seventh in brand value out of 204,555 fast food restaurants in America in 2022. The company is rebranding with a new logo identity, brand uniforms, packaging, restaurant design and signage, and branding strategies. marketing. Fast Company describes the result as follows:
Burger King’s rebranding efforts have been a huge success, according to the company. The fast food outsider outperformed McDonald’s by 66% with consumer buying intent. Customer visit intent increased 39%, and Burger King received 1.1 billion impressions in the first five days of rebranding.
The food is delicious and bittersweet. Investment should be done with caution.
The business is profitable, has high growth potential and is a low risk investment. QSR has upside potential and the dividend yield is attractive. Debt and operating cash flow numbers are part of our concerns, but not red flags.
The company’s purchase of Firehouse Subs during the pandemic was bold; The same goes for Popeyes’ expansion in South Korea this year. Last year it opened in Spain, Switzerland, China, Brazil, Sri Lanka and the Philippines.
We expect QSR to outperform. Buy what you like. Let us know how you like their food and broth.