For those looking to put capital to work in the Canadian stock market, there are certainly a wide number of options to choose from. From energy to financials and materials, there are a number of sectors most investors focus on. However, one company I’ve always thought is relatively overlooked on the TSX is Restaurant Brands (TSX: QSR).
The parent company of Tim Hortons (many Canadian’s favourite), Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs continues to fire on all cylinders. While the stock has dipped recently, I view this move as a potential buying opportunity. Here’s why.
Whopper growth
Restaurant Brands’s existing footprint is impressive, with 28,000 eateries across 100 countries in 2021, generating roughly $35 billion in revenue for the company annually. However, over the next five years, Restaurant Brands International intends to open 7,000 new locations across the globe. The company’s focus is primarily on expanding into markets where it already has success.
Management is targeting target sales for all of their restaurants combined are expected to reach $60 billion by 2028, with an adjusted operating income of $3.28 billion. For those investors who stay with the company over the long term, this could mean larger payouts.
Strong forward outlook
All of the company’s indicators showed a significant increase during the recent period. The company’s system-wide sales increased by an impressive 8.1% in the past year as a result of this growth. Financial performance-wise, income from operations came in at $544 million, a significant rise over the $447 million recorded the year before. In a similar vein, net Income increased significantly from $277 million to $328 million in the prior year.
Moreover, diluted earnings per share (EPS) increased, rising from $0.61 to $0.72 from the previous year. With an increase of 7.7% from the previous year to $540 million, adjusted operating income showed robust organic growth. Adjusted diluted EPS fell (0.9)% from the prior year to $0.73, reflecting a minor organic reduction. Together, these numbers demonstrate the company’s overall development and financial success throughout the specified time frame.
At present, QSR stock price is trading at roughly 21 times future earnings. The company’s sales in the first quarter of 2024 climbed by 8% to $1.74 billion, exceeding the $1.7 billion forecast. They beat the estimate of $0.72 with their EPS of $0.73. With $12.3 billion in net debt, QSR has a 4.8 times net debt to earnings before interest, taxes, depreciation, and amortization ratio.
Compared to the 5.1 times debt ratio in the prior year, this ratio has somewhat dropped. Except Firehouse, a new acquisition, all brands saw strong sales. Up until the fiscal year 2028, the company anticipates a 5% growth in the number of restaurants and a 3% increase in sales. These are its long-term objectives. This quarter was mediocre all around.
Bottom line
Overall, this quarter for QSR has been decent, and the company’s valuation seems reasonable compared to other restaurants. So, if you are planning to add to your investment portfolio, I think QSR stock is a great place to start.
