After a 22% growth over the last six months, at the current price of around $67 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 term. QSR stock has increased from around $55 to $67 in the last six months, outperforming the broader indices, with the S&P falling about flat over the same period. QSR’s stock growth can be attributed to its impressive second and third-quarter results. Also, the hire of former Domino’s Pizza CEO Patrick Doyle as Restaurant Brands’ new executive chairman has led to this rise in the company’s stock. Doyle led Dominos through an incredible period of growth during his eight-year tenure when the stock gained 2,200%. What’s even more exciting is that Doyle won’t be paid for this role. Rather, he’ll 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 Q3 revenues grew 15% year-over-year (y-o-y) to $1.7 billion, fueled by strong same-store sales growth from Burger King’s overseas restaurants. The chain’s comparable sales rose 9.1% during the quarter, led by a 10.3% gain for the Burger King chain, a 9.8% rise for the Tim Hortons chain, and a 3.1% increase for the Popeyes chain. In addition, its net income grew 61% y-o-y to $530 million in Q3. 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. QSR included results from its franchised restaurants in Russia within reported key business metrics, but it does not expect to generate any profits from restaurants in Russia in 2022. During the third quarter, these restaurants had an estimated $12 million (or 2%), negative impact on their y-o-y organic adjusted EBITDA growth.
We forecast QSR’s Revenues to be $6.5 billion for the fiscal year 2022, up 13% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $3.17. Given the changes to our revenues and earnings forecast, we have revised our QSR’s Valuation to about $67 per share, based on $3.17 expected EPS and a 21.0x P/E multiple for the fiscal year 2022 – 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.
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