After a 20% growth over the last six months, at the current price of around $66 per share, we believe Restaurant Brands International Inc. stock (NYSE: QSR), one of the largest fast-food restaurant chains in the world, including Burger King, Tim Hortons, Popeyes, and, since late 2021, also Firehouse Subs – is fairly priced in the near
near
term. QSR stock has increased from around $55 to $66 in the last six months, outperforming the broader indices, with the S&P growing about 8% over the same period. QSR’s stock growth can be attributed to its solid business. All four company segments delivered sales growth in 2022 and three of them generated double-digit percentage growth. Also, the hire of a new (and relatively young) CEO Joshua Kobza as CEO on March 1, replacing José Cil – likely contributed to this rise in the company’s stock. Kobza has been with Restaurant Brands for eleven years, previously serving as chief operating officer since 2019. The company also had hired former Domino’s Pizza CEO Patrick Doyle as Restaurant Brands’ new executive chairman a few months back. What’s interesting is that Doyle will be not be paid for his role but will be rewarded handsomely if the stock price rises to at least $81.32 within five years, and further awards for hitting $122 (nearly double today’s price). The alignment between Doyle and Restaurant Brands’ shareholders highlights the stock’s upside potential in the long term.
QSR’s Q4 revenues grew 10% year-over-year (y-o-y) to $1.69 billion, fueled by strong same-store sales growth from Burger King’s overseas restaurants. The company’s consolidated comparable sales were up nearly 8% in Q4, led by 11% growth at Tim Hortons Canada and Burger King International. However, its adjusted earnings fell 3% y-o-y to $0.72 per share. But full-year adjusted EPS was up 11% y-o-y to $3.14. The improvement was primarily driven by an income tax benefit in the current year and a non-recurrence of a loss on early extinguishment of debt. Restaurant growth accelerated to 1,266 net new units with Popeyes delivering its strongest development year since joining the brand.
QSR included results from its franchised restaurants in Russia within reported key business metrics, but it did not generate any profits from restaurants in Russia in 2022. During the fourth quarter, the non-recurrence of 2021 profits from these restaurants had an estimated $11 million, or 2%, negative impact on y-o-y organic adjusted EBITDA growth. Consequently, beginning in the first quarter of 2023, the company intends to report its key performance indicators excluding the results from its franchised restaurants in Russia.
We forecast QSR’s Revenues to be $6.7 billion for the fiscal year 2023, up 6% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $2.99. Given the changes to our revenues and earnings forecast, we have revised our QSR’s Valuation to about $68 per share, based on $2.99 expected EPS and a 22.8x P/E multiple for the fiscal year 2023 – almost in line with the current market price.
Burger King (the largest company in QSR’s portfolio) is revamping its brand with its Reclaim the Flame initiative in order to increase traffic, sales growth, and franchisee profitability in the U.S.. The company is investing $400 million in this plan to remodel aging restaurants, strengthen advertising, unveil new menu items, and improve overall restaurant experiences. If the initiative works out, it could give a big boost to QSR’s top and bottom lines in a few years.
It is also helpful to see how its peers stack up. Check out how Restaurant Brands International’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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