Shares of Restaurant Brands International (TSX:QSR) went public in late 2014. Since its IPO (initial public offering) in December 2014, the TSX stock has returned 173% to shareholders. After adjusting for dividends, cumulative returns are much higher at 250%.
Valued at a market cap of $48 billion, QSR stock is among the largest companies in Canada. Let’s see if the top TSX stock is positioned to deliver outsized gains to current investors.
QSR has aggressive expansion plans
With more than US$40 billion in annual system-wide sales, Restaurants Brands International owns iconic brands such as Tim Hortons, Burger King, Popeyes, and Firehouse Subs. Last month, the company disclosed its ambitious growth plans as it expects to end 2028 with 40,000 restaurants, US$60 billion in system-wide sales, and US$3.2 billion in adjusted operating income.
In the next five years, QSR aims to grow comparable sales by 3% and system-wide sales by at least 8% annually. According to QSR, its investment horizon should result in low double-digit shareholder returns, allowing it to outpace the TSX in the next five years. Let’s see what QSR has in store for each of its business segments.
Tim Hortons
Tim Hortons has a leading market share in verticals such as hot brewed coffee, baked goods, and breakfast sandwiches. By 2028, Tim Hortons aims to gain further traction in cold beverages and other specialty beverages. The company aims to expand south of the border, as U.S. businesses are expected to be the largest contributor to new restaurant growth, with 1,000 locations planned by 2028.
International
Growth in international markets will be driven by QSR’s network of master franchisee partners. Despite a substantial global footprint, each of QSR’s four brands offers an opportunity for new country expansion. In the next five years, QSR plans to open over 7,000 new restaurants in international markets.
Burger King
In the last 15 months, QSR has made significant investments in the Burger King business. This includes the plan to modernize and refranchise most of its outlets in the U.S. QSR expects top-line growth to gain pace on the back of effective marketing and an improved guest experience.
Popeyes
Popeyes expects to grow its U.S. and Canada restaurant base from 3,400 in 2023 to more than 4,200 by 2028.
Firehouse Subs
In its recent press release, QSR emphasized Firehouse Subs will contribute to its broader outlook by scaling its digital channels to 100% of sales in the next few years. In addition net restaurant growth in under-penetrated markets in Canada and the U.S. will help it end 2028 with 800 new units.
Is QSR stock undervalued?
QSR ended 2023 with a total debt of $13.4 billion and a net debt of US$12.3 billion, indicating a leverage ratio of 4.8 times. In 2023, QSR reported free cash flow of US$1.2 billion while its net interest expense stood at US$474 million, up from US$383 million in the year-ago period.
Given its annual dividend payout of US$2.32 per share, QSR paid around US$990 million to shareholders in 2023, indicating a payout ratio of over 80%, which is quite high.
QSR’s expansion plans should result in higher cash flows and dividends, enhancing shareholder wealth over time. Priced at 31 times forward earnings, QSR stock is not too expensive and trades at a discount of 10% to consensus price target estimates.
