Valued at US$21.9 billion by market cap, Restaurant Brands International (TSX: QSR) is a quick-service restaurant company. It owns and operates brands such as Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs. With more than 30,000 restaurant outlets in over 100 countries, Restaurant Brands is among the largest food companies in the world.
Shares of Restaurant Brands International went public in December 2014 and have since returned 141% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are much higher at 215%. Comparatively, the TSX index has returned close to 150% in dividend-adjusted gains over the past decade.
While QSR stock has delivered market-beating returns to shareholders, let’s see if it remains a top investment at current multiples.
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Is QSR stock a good investment right now?
Due to sluggish consumer spending, Restaurant Brands’ comparable sales grew by 0.3% year over year in the third quarter (Q3) of 2024. However, net restaurant sales rose by 3.8%, translating to system-wide sales growth of 3.2%. Focusing on cost discipline helped offset soft system-wide revenue growth, resulting in adjusted operating income growth of 6.1%.
Notably, the company saw its business accelerate in October, with comparable sales rising by low single digital due to strong international sales. In the first nine months of 2024, QSR’s system-wide sales grew by 5.3%, marginally below estimates.
Similar to other companies, Restaurant Brands International has sought to drive profit margins through cost savings initiatives, as organic adjusted operating income grew by 7.5% year over year in the last three quarters.
Tim Hortons is the most significant contributor to the bottom line, accounting for 43% of adjusted operating income. Due to higher traffic growth, this business delivered a 2.7% increase in comparable sales in Q3.
During the earnings call, QSR chief executive officer Joshua Kobza stated, “While we continue to see a softer consumer environment impact the broader QSR industry in Canada, Tims’ #1 restaurant brand love and #1 value positioning allow us to maintain our leading market share in coffee, baked goods, and breakfast sandwiches and wraps.”
The company’s international business accounted for 25% of operating income in Q3 as comparable sales rose by 1.8%, with net restaurant growth of 7.6% and system-wide sales growth of 8%.
Is QSR stock undervalued?
Restaurant Brands International trades at a forward price-to-earnings multiple of 18.6 times. Comparatively, its adjusted earnings are forecast to expand by 9.5% annually over the next five years. So, QSR stock trades at a reasonable multiple given its earnings growth estimates and a forward dividend yield of 3.5%.
In the last 12 months, Restaurant Brands International reported a free cash flow of US$1.25 billion, up from US$804 million in 2020. Factoring its outstanding share count, its annual dividend expense is around US$1 billion. These payouts have risen by 22% annually in the past decade, which is exceptional for the TSX dividend stock.
Priced at 17.5 times trailing FCF, QSR stock trades at a discount of 25% compared to consensus price target estimates.
The Foolish takeaway
While QSR stock trades at a premium, the company owns several global brands, which should help it gain traction in several international markets. Moreover, its growing dividend yield makes the TSX stock a top choice for long-term investors.
