Fast-food chains, or quick-service restaurants, should thrive from high inflation when consumers tighten their belts or seek value for money. Inflation should also have a positive impact on stocks. Restaurant Brands International (TSX:QSR) is the industry’s top name on the TSX. The question today is, is the former Warren Buffett stock worth buying in April 2023?
Recovery from the COVID-induced market sell-off
In March 2020, when the coronavirus was declared a global pandemic, governments had to impose lockdowns and social distancing measures. Airline companies and the food sector took a hit. The share price sank to as low as $39.24 on March 18, 2020, from a high of $84.31 a month before.
Buffett’s Berkshire Hathaway sold its entire holdings in RBI in April 2020, thinking the business was dead in the water. However, the stock recovered magically from the sell-off to finish the year at $77.19, or 96.7% higher than its COVID-low. Popeyes’ chicken sandwich became the hottest food item in 2020.
No losing year
The $39.8 billion company is one of the world’s largest quick-service restaurants. RBI operates four iconic global brands, namely Burger King, Tim Hortons, Popeyes, and Firehouse Subs. Its net income in 2020 declined 24.4% to US$486 million versus 2019. In 2021, profit grew 72.4% year over year to US$838 million.
In 2022, RBI’s total revenues and net income rose 13.3% and 18.3% to US$6.5 billion and US$1.5 billion, respectively, versus 2021. Management said it focused on being guest-led in everything and set the franchisees up for long-term success. Free cash flow reached US$1.4 billion.
Tim Hortons had strong sales momentum in Q4 2022, which resulted in an 11% increase in comparable sales versus Q4 2021. Burger King US expects a sequential improvement in comparable sales and the ‘Reclaim the Flame’ plan to accelerate sales growth and drive profitability. Meanwhile, Burger King International reported double-digit comparable sales growth.
Popeyes was the stellar performer following its strongest year of restaurant growth. The number of restaurants worldwide grew to nearly 4,100. Expect the Firehouse Subs brand, the newest member of the RBI family, to accelerate development and grow digitally in the coming years.
Top RBI investor
Bill Ackman, the founder and CEO of Pershing Square Capital Management, maintains a concentrated stock portfolio and has a penchant for restaurants. He owns around 24.1 million QSR shares based on the latest 13F Holdings filing in the United States.
Ackman believes a restaurant is a high-quality business. RBI, for instance, has predictable cash flows and visible, durable growth. It was also a catalyst during the pandemic, which sets it apart from other stocks. According to published reports, Ackman has a successful track record of investing in restaurants and has never lost money on them.
Valuable food company
At $87.88 per share, RBI investors are up 1.25% and partake in the 3.5% dividend. The stock posted minimal losses in 2020 (-2.2%) and 2021 (-0.6%), then registered a 14.2% positive gain in 2022.
Insider Monkey names Restaurant Brands International as one of the world’s 25 most valuable food companies. The size and scale of the business are compelling reasons to invest in this large-cap restaurant stock. While the share price could rise and fall, the dividend payments should be rock-steady.
