One of the most popular quick-service companies is Restaurant Brands International (TSX: QSR). It owns and operates brands such as Burger King, Tim Hortons, Firehouse Subs, and Popeyes Louisiana Kitchen.
Shares of the company went public in December 2014 and have since returned 215% to investors after adjusting for dividends. In this period, the TSX index has gained 82%. Trading close to all-time highs, QSR stock also pays shareholders an annual dividend of $2.89 per share, translating to a dividend yield of 2.9%.
Let’s see if it makes sense to invest in Restaurant Brands International stock right now.
The bull case for QSR stock
With approximately $35 billion in system-wide sales annually and a network of over 29,000 restaurants in more than 100 countries, QSR stock is valued at a market cap of $45 billion. Its portfolio of independently operated brands has allowed the company to benefit from a global scale over time.
QSR reported revenue of $1.59 billion in the first quarter (Q1) of 2023 compared to $1.45 billion in the year-ago period. Its net income grew to $277 million from $270 million in the prior-year quarter.
QSR’s comparable sales were up 10.3%, while new restaurants increased by 4.2% year over year. Its system-wide sales also rose by 14.7% in Q1. Despite an inflationary environment, QSR reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $588 million, an increase of 15.6%. An expansion in profit margins also allowed the company to increase adjusted earnings by 22.1% to $0.75 per share in the March quarter.
In September 2022, Burger King announced a “Reclaim the Flame” plan to accelerate top-line growth and drive profitability. It stated the company will invest $400 million in this plan, which includes $150 million in ads and digital investments. The rest will be allocated toward remodels and relocations as well as improving technology, kitchen equipment, and other enhancements. As of Q1 of 2023, QSR has already deployed $45 million to kickstart this plan.
In the March quarter, the Burger King segment experienced system-wide sales growth of 14.3%, and comparable sales were up over 10%. Its net restaurant growth stood at 2.5%.
A look at QSR stock and its valuation
Analysts expect QSR’s sales to rise by 5.5% to $9.18 billion in 2023 and by 6.2% to $9.75 billion in 2024. Its adjusted earnings are forecast to expand from $4.2 per share in 2022 to $4.51 per share in 2024.
So, QSR stock is priced at 3.8 times forward sales and 24 times forward earnings, which is quite reasonable compared to peers.
Restaurant Brands continues to expand its global footprint and aims to gain traction in emerging economies such as China and India. However, it will also have to combat risks such as inflation and lower consumer demand in the near term. Additionally, fast-food chains need to plough in resources towards marketing and fight off competition in an extremely crowded space.
The Foolish takeaway
QSR stock is fairly valued, and the company is well poised to benefit from its global reach, focus on franchise expansion, and opening of additional stores. Moreover, its tasty dividend yield makes it attractive to income-seeking investors as well.
