The Canadian equity markets continue to remain volatile as investors navigate the challenging macroeconomic backdrop. While inflation has eased somewhat, elevated interest rates are slowing consumer spending, making many companies appear to be fairly valued (at least) in this current environment.
With that said, there are some value stocks I do think are worth considering right now. One is Restaurant Brands (TSX:QSR), a company I’ve been pounding the table on for quite some time.
Let’s dive into what to make of this company’s recent moves, and where Restaurant Brands could be headed from here.
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Where Restaurant Brands has come from
Over the past five years, Restaurant Brands’ stock chart has looked relatively stable (see above). This stock is up meaningfully over this timeframe, but it’s also true that plenty of other stocks in this market have outperformed the fast food giant.
There are a number of reasons for this, including Restaurant Brands’ previous pricey multiple and its growth expectations relative to the numbers the company actually delivered. The thing is, Restaurant Brands’ model of collecting revenue via its network of franchised stores (taking royalty fees) and operating company-owned restaurant locations has provided stable and consistent growth over time.
Many experts believe this growth is likely to continue for some time, as the company continues to expand globally and focus on higher-growth markets around the world. I think this is an important aspect to consider, and is one that should drive future earnings growth over time.
How has growth looked recently?
On the fundamentals front, I think there’s a lot to like about how Restaurant Brands is positioned right now. The stock’s current multiple of 17 times earnings is reasonable and suggests the market believes this fast food giant will deliver market-weighted returns, at least over the medium term.
The company’s Q2 results painted a picture of strong growth, but nothing to really write home about. Thus, this multiple may make sense. Overall system-wide sales growth of 5% is decent, but it’s not going to get growth investors off the sidelines and into this name.
That said, on the bottom line, the company’s 14.3% EPS growth is something I think value investors are paying closer attention to. Restaurant Brands brought in $0.88 of earnings per share this past quarter compared to $0.77 the same quarter the year prior. Operating income also grew 9%, suggesting growth may be more robust beneath the surface, as the company continues to make its operations more efficient and focus on profitability.
Restaurant Brands remains a buy
In my view, there are few better defensive options to consider in this market. Folks need to eat, and those choosing to eat outside their home may look for lower-priced options if times do get tough. However, if we do see a continuation of this bull market, companies like Restaurant Brands could perform as well as the market. That’s a bet I think equities investors can make right now.
Over the next 1–5 years, I expect Restaurant Brands to perform at least as well as the overall TSX. And in the case we do get a recession, this is a stock that can vastly outperform its peers – that’s why this is a stock I’d hold for the long term, and start accumulating on any significant weakness moving forward.
