There is a new kid on the block this year when it comes to the S&P/TSX, at least sort of. The purchase of Tim Hortons by Burger King Worldwide has created a new company, Restaurant Brands International Inc. (TSX: QSR)(NYSE: QSR), a stock that has soared over 21% since its trading debut on December 11, 2014.
If Restaurant Brands International Inc. could maintain such lofty gains it could pretty much guarantee that it would be one of the top performing stocks for 2015, but this is highly unlikely.
The rapid gains Restaurant Brands International has experienced are a common occurence with newly minted stocks, either IPOs or those formed through the merger of pre-existing companies. In terms of Restaurant Brands International these levels of gains are most likely unsustainable. But, I think the direction is right. This “new” company has a lot going for it, and therefore its stock should continue to appreciate.
Star ownership
Many are banking on a solid performance in the coming years from Restaurant Brands International, including Warren Buffett. Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) in December reported its ownership and control of over 4.18% of the outstanding common shares and 14.37% of the total number of votes attached to all outstanding voting shares of Restaurant Brands International Inc., acquired through its wholly owned subsidiary, National Indemnity Company.
Anytime Warren Buffett takes a position in a company investors take notice. A purchase from Warren Buffett is basically a stamp of approval on a company’s growth strategy, confirming that where that company is headed is someplace better than it is today.
Uncapped potential
Growth is the biggest challenge that restaurant chains, including quick service chains, are facing right now, with many markets saturated. Many North American chains have expanded as much as they can on the continent, and are eyeing overseas demand to continue to grow. As a stand-alone company, Tim Hortons tried to expand internationally, but this expansion was met with mixed success.
When Tim Hortons tried to expand, it was treading into uncharted territory. With Burger King now effectively running the company under the Restaurant Brands International banner, Tim Hortons is getting leadership that is experienced, and successful at global expansion. Burger King has a presence in almost 100 countries around the world, and the company was interested in Tim Hortons from the start for its international potential. Clearly, this is a match made in heaven.
Where do we go from here?
While I don’t think the aggressive short-term gains Restaurant Brands International experienced are sustainable over the long-term, there is still a solid, bull case for the company. As the company expands Tim Hortons stores to new markets, growth is almost a certainty.
Restaurant Brands International’s potential to appreciate is very convincing. With a few stocks in your portfolio that are as much of a sure thing as Restaurant Brands International, its very likely that you will see market-beating gains.
