One of the largest quick-service restaurant companies in the world, Restaurant Brands International (TSX:QSR)(NYSE:QSR) is a true gem on the TSX. This is a stock that Warren Buffett has stepped into in the past, providing financing on a couple of occasions.
This is a stock I think has the potential to take off in a post-COVID world. The company’s undertaking some key changes to its business model that should pave the way for such long-term growth. Accordingly, I think this is a stock with undervalued growth potential right now.
There’s still a lot of work to be done
Restaurant Brands has a lot of work ahead to improve its standing as a top-notch growth play. Indeed, the company’s Tim Horton’s banner has underperformed significantly of late. As mentioned, Restaurant Brands’s management team is making some key adjustments to its business model to improve performance. Investments around the drive-thru offerings at Tim Hortons, menu innovation, and other operational improvements are underway.
These short-term tweaks are great; however, it appears the company will need to do more to create sustainable growth long term. New store openings will continue, particularly in key Asian markets. However, if Tim Hortons can’t get back to improving its same-store sales metrics as its sister banners, the long-term growth this company has been known for will continue to stall.
As fellow Fool contributor Joey Frenette commented in a recent piece, the modernization of Tim Horton’s drive-thrus is a long time coming. Indeed, this is a company in catch-up mode. That said, I have to agree with Frenette’s assessment that coming out of this pandemic, these changes should make a big difference.
More acquisitions could be on the horizon
One of the key reasons I think Restaurant Brands has more room to run is its history of acquisitions. The company’s addition of Popeyes a few years back has proven to be a stellar one. I think the company could continue to diversify its restaurant holdings, moving into pizza or another category. Such a move would provide heightened growth potential. It would also diminish the outsized impact Tim Hortons currently has on the company’s top and bottom lines.
Tim Hortons is a great banner; however, it remains an anchor weighing down this company. I think Restaurant Brands will be forced to grow its way out of this conundrum. Another acquisition or two could solve many of these problems. After all, diversification is a conglomerate’s best friend. Fast food will be here to stay, but some segments are just better than others.
Can Tim Hortons get back to its previous growth trajectory? I think so. I think it may just take longer than some investors are willing to wait to materialize. As such, I think this is a stock for patient “Warren Buffett-like” investors who believe in the track record of Restaurant Brands’s management team.
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Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends RESTAURANT BRANDS INTERNATIONAL INC.