Better Buy: Restaurant Brands Stock or MTY Food Group?

I’m looking at Restaurant Brands International Inc. (TSX:QSR) and MTY Food Group Inc. (TSX:MTY) stocks after recent earnings.

Ambrose O'Callaghan

Ambrose O'Callaghan graduated with a BA in Political Science from McMaster University. After that, he jumped into the banking world. He worked from the front line to an investment associate role. After that, he found a way to marry his experience and knowledge in the world of banking and finance to his love and passion for writing. Ambrose is a passionate believer in Warren Buffett's value investing model.

Published May 8, 2023 11:00 am EDT

The S&P/TSX Composite Index climbed 303 points on Friday, May 5. This was a strong way to close what had been a volatile week. Indeed, Canadian stocks have been hit by turbulence in April and early May. Some of the best-performing stocks on May 5 included information technology, battery metals, base metals, and health care. Today, I want to discuss whether Restaurant Brands International (TSX: QSR) or MTY Food Group (TSX: MTY) is the better buy. Let’s jump in!

Here’s why restaurant stocks are worth owning right now

Last year, Dalhousie University released the 2023 Canada Food Price Report. This is a useful tool for investors and consumers alike who want to get an idea of where food prices will go in the year ahead. Unfortunately, the 2023 report projected that food price inflation would continue to put pressure on consumers.

This report projected restaurant price inflation of 6-8% for 2022. Price growth ended at the higher end of that range at 7.5% to close out the year. The 2023 report has forecast restaurant price inflation between 4% and 6%. Restaurant Brands and MTY Food Group could see a boost due to this price growth. However, too much price inflation can also drive away consumers. Let’s see how these restaurants have performed recently.

The case for Restaurant Brands stock

Restaurant Brands is a Toronto-based fast-food holding company that operates top fast-food chains like Burger King, Tim Hortons, and Popeyes Louisiana Chicken. It is one of the five largest fast-food operators on the planet. Shares of RBI have climbed 6.9% month over month as of close on May 5. The stock is up 8.6% so far in 2023.

The company released its first-quarter (Q1) and full-year fiscal 2023 earnings on May 2. RBI delivered consolidated comparable sales growth of 10% and net restaurant growth of 4.2%. Meanwhile, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $588 million — up 15% compared to Q1 of fiscal 2022. Moreover, adjusted earnings per share (EPS) shot up 22% to $0.75.

RBI is on track to deliver strong earnings growth going forward. Its board of directors declared a quarterly dividend of $0.55 per share. That represents a 3.1% yield.

Is MTY Food Group the right play in May?

MTY Food Group is a Montreal-based company that operates and franchises quick-service, fast-casual, and casual dining restaurants in Canada, the United States, and around the world. Some of its familiar brands include Thai Express, Country Style, Yogen Früz, Taco Time, and many others. Shares of this restaurant stock have dropped 2.3% over the past month. The stock is up 4.5% in the year-to-date period.

In Q1 fiscal 2023, MTY Food Group posted adjusted EBITDA growth of 79% to $64.0 million. Meanwhile, system-wide sales rose to an all-time high of $1.4 billion — up 54% from the previous year.

This restaurant stock currently possesses a favourable price-to-earnings ratio of 18. MTY Food Group offers a quarterly dividend of $0.25 per share, which represents a modest 1.6% yield.

The verdict

MTY Food Group has put together impressive earnings recently, but I’m still rolling with RBI for its track record and proven brands. Moreover, it offers superior income at the time of this writing.