Is Restaurant Brands International a Buy After its Recent Earnings?

QSR stock has generated market-thumping gains since its IPO in late 2014. It continues to trade at a fair valuation and pays a dividend, too.

| More on:
sad concerned deep in thought

Image source: Getty Images

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.

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.

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

More on Dividend Stocks

Golden crown on a red velvet background
Dividend Stocks

Here Are My Top 5 Dividend Aristocrats to Buy Right Now

Canadian National Railway (TSX:CNR) is a Dividend Aristocrat with 27 years of dividend growth.

Read more »

Woman has an idea
Dividend Stocks

The Smartest Canadian Dividend Stocks to Buy With $500 Right Now

Besides their years-long dividend-growth track record, the strong fundamentals of these Canadian dividend stocks make them really attractive to buy…

Read more »

retirees and finances
Dividend Stocks

No, the CPP Didn’t Squander $46 Billion of Taxpayer Money

The Globe and Mail claimed that the CPP Board mismanaged Canadians' money, but it beat the returns earned by the…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

Better Buy: Telus or BCE Stock

BCE (TSX:BCE) has a higher dividend yield than Telus (TSX:T). Is it a better buy?

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

This High-Yield Dividend Stock Is a Monster Passive-Income Machine 

This top TSX dividend-growth stock offers a 7.4% yield.

Read more »

Hourglass projecting a dollar sign as shadow
Dividend Stocks

For a Shot at $5,000/Year in Passive Income, Buy 6,850 Shares of This TSX Stock

Whitecap Resources is a monthly dividend stock that offers you a tasty dividend yield while trading at a cheap valuation.

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Love Value Stocks? 2 That Are Screaming Buys in May 2024

Patience can pay off by investing in these two value stocks with nice dividends and the potential to turn around.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

2 Everlasting Canadian Stocks for Your RRSP

The Canadian National Railway (TSX:CNR) stock is worth owning for the long haul.

Read more »