Have Tim Hortons’ PR Woes Created a Value Opportunity?

Embattled Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR) may offer a value opportunity, as the Tim Hortons owner continues to backpedal.

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Here’s an appeal to our readers. For the price of a cup of coffee, you could buy… well, not very much. About 1/37 of a stock in Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR), to be precise.

We’re riffing on a familiar website pop-up here, but the message is pretty much on point. Stock in Restaurant Brands is doing okay. In fact, today it’s up by half a percent to $73.38. That’s a little bit of good news for shareholders who have been watching the Tim Hortons’ PR machine burn through a serious amount of gas in recent months. But stock in Restaurant Brands is still currently devalued thanks to the recent Tim Hortons debacle, so let’s take a look at whether it’s worth saving your beans to buy a watered-down cup of joe.

People still need to eat…

…and drink coffee. Let’s face it, the Tim Hortons’ model just works. Cheap food, good coffee, fast service – it’s a brand that’s about as efficient as it could possibly be. So while the dispute between franchisees and their parent company rumbles on, the fact is that Tim Hortons’ customers are satisfied, as their Q1 report shows. Sure, a 2.8% growth in Tim Hortons’ operations isn’t much, but it’s still growth in a saturated market. Likewise, a 2.1% sales growth isn’t much, but hey, at least it’s not a decline. And with a new marketing campaign and renovations on the way, the brand looks set for further growth.

What’s eating Restaurant Brands?

Besides the public spat between Restaurant Brands and its franchisees, McDonald’s Corporation is also nibbling at Tim Hortons’ client base, muscling in on the market penetration model with its cheap coffee. And that might make already jittery potential investors question the staying power of Restaurant Brands.

As I wrote recently, millennials like to invest in products and services they’re familiar with. New investors may therefore be tempted to side with a big, visible Tim Hortons’ competitor like McDonald’s. But I’m going to recommend that they stick with Restaurant Brands as a possible value opportunity. Why? Because while commodities are notoriously volatile right now, Tim Hortons is still punching above its weight in a market dominated by massive high street brands.

Will Restaurant Brands be able to fend off McDonald’s with its $1 coffee? Yes, because competing penetrators are nothing new – and there’s still a Tim Hortons on pretty much every street corner in Canada.

And let’s not forget that Tim Hortons is beginning to expand overseas. You’ll already find your familiar coffee-slingers in the U.S., but there may well be one of the cut-price little eateries on street corners across Europe soon.

The bottom line

If you’re looking for a growth stock with a battle-ready and expansion-hungry management style, Restaurant Brands could be for you. And with a rewarding dividend stock with a forward annual yield of 3.16%, you also have a tasty stock for income investors.

A 13% share price dip is catnip to investors looking for a value opportunity. If you think Restaurant Brands is going anywhere, think again. With plenty of Canadian customers providing healthy footfall in branches of Tim Hortons throughout the country and beyond, this is a stable stock worth buying and holding. As long as coffee-swilling industries exist – from construction to education and everything in between – there’ll be very few red Tim Hortons’ cups strewn across the landscape.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of RESTAURANT BRANDS INTERNATIONAL INC.

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