Restaurant Brands International (TSX:QSR) Stock: Should You Buy?

In the last 12 months, QSR stock has lost 3% and 8% in the last five years.

| More on:
Businessmen teamwork brainstorming meeting.

Image source: Getty Images

The parent of Tim Hortons and Burger King, Restaurant Brands International (TSX:QSR)(NYSE:QSR), has not created any meaningful value for long-term investors in the last few years. While many stocks have breached their pre-pandemic highs, QSR stock has been lingering around its typical range of $70-$80 apiece. In the last 12 months, the stock has lost 3% and 8% in the last five years.

Is QSR turning around?

The $35 billion Restaurant Brands International is one of the biggest quick-service restaurant chains in the world. It operates more than 27,000 restaurants in over 100 countries.

It generates revenues from royalties from franchises as a percentage of its revenues and property revenues that it leases to franchises. Apart from these two, sales at company-operated restaurants also contribute to the company’s revenues. Notably, its large global presence and unique value proposition play well for its long-term business growth.

Restaurant Brands is seeing decent recovery in many of its geographies as COVID-related restrictions waned in the last few quarters. Its revenues in the last 12 months grew 11% compared to the previous comparable period. Its fast-growing brands, Tim Hortons and Popeyes Louisiana Kitchen, will likely keep seeing encouraging growth going forward.     

Financials

During the second quarter (Q2) of 2022, the company reported US$1.64 billion in revenues, a 14% surge year over year. For the same period, its net income came in at US$346 million.         

Burger King reported comparable sales growth of 10%, Tim Hortons saw 12%, and Popeyes saw it at 1% year over year.

In the last five years, Restaurant Brands International has reported a 7% sales compound annual growth rate (CAGR) and a 12% net income CAGR. Apart from earnings, the company’s debt has also significantly increased in this period. In 2016, it had a total debt of US$8.8 billion, which has now ballooned to US$14.5 billion at the end of Q2 2022. Its net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio comes around a concerning 6.2, while debt is more than three times equity.

This could be a problem in the long term if the company’s profitability is not increased markedly. To be precise, the company spends more than 25% of its operating profit on interest expenses.

Driven mainly by its steep financial leverage, Restaurant Brands’s average return on equity comes in at a decent 28%. However, its average return on capital is at a measly 9%. Having these profitability ratios above 15% is an important yardstick to invest in a stock.

Valuation

QSR stock has shown some recovery of late, gaining 24% since June. It is currently trading 22 times its earnings and looks fairly valued compared to peers. Its enterprise value-to-EBITDA ratio is at 14 and does not look too attractive. Note that QSR stock pays a handsome dividend yielding 3.8%.

Given the unique product range and scale, QSR seems an attractive bet. However, its large debt could continue to weigh on its profitability. So, when looked at its poor return on capital and highly leveraged balance sheet, the stock does not look like an appealing long-term buy.

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.

The Motley Fool recommends Restaurant Brands International Inc. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

More on Dividend Stocks

Dividend Stocks

Be a Landlord in Canada: Earn $162 a Month Tax Free With REITs

Rising interest rates and growing inflation have created an opportunity to buy REITs at a discounted price and lock in…

Read more »

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

TFSA Pension: How Retired Couples Can Generate $706 Each Month Tax Free for Life

Canadian retirees can buy and hold blue-chip dividend stocks such as Enbridge in their TFSA to benefit from tax-free gains.

Read more »

consider the options
Dividend Stocks

Better Buy: 2 Stocks or 1,000 Shares?

Stocks and shares can be the same, but knowing the difference can help you understand how to capitalize on better…

Read more »

Electricity high voltage pole and sky
Dividend Stocks

TFSA Investors: Steady Utility Stocks to Buy Now and Cash In for Life

Two Canadian utility stocks are ideal cornerstones in a TFSA, because of their recession-resistant nature and impressive dividend-growth streaks.

Read more »

grow money, wealth build
Dividend Stocks

2 Bargain Stocks You Can Buy Today and Hold Forever

These top Canadian dividend stocks look cheap right now for buy-and-hold investors.

Read more »

Glass piggy bank
Dividend Stocks

How to Turn a $30,000 TFSA or RRSP Into $550,000

Retirement investors have used this popular strategy to build retirement wealth.

Read more »

Retirement plan
Dividend Stocks

3 Dividend Stocks to Set Yourself Up for Retirement

Dividend stocks can be the best way to increase your income both for now and for retirement, and these are…

Read more »

Couple relaxing on a beach in front of a sunset
Dividend Stocks

Canadians: 3 Easy Stocks to Invest in for Retirement

It’s never too early to begin retirement planning. Adding the right mix of stocks to an RRSP can grow your…

Read more »