As far as blue-chip Canadian stocks investors may look at right now and deem a “screaming buy,” I’d say Restaurant Brands (TSX:QSR) has to be in the discussion for most investors.
This is a company with a highly defensive business model that’s seeing a surge of interest from billionaire hedge fund managers. Indeed, when the smart money is moving into a relatively overlooked name, that’s a very good sign.
Here are three of the top reasons why I think Restaurant Brands is finally getting the attention it deserves, and where this top fast food giant could be headed from here.
Solid earnings driving impressive returns
System-wide sales growth across the company’s portfolio of fast food banners saw solid momentum this past quarter. Restaurant Brands saw 6.9% year-over-year growth overall, with 4% comparable sales growth over the same period. Those are strong numbers for a company with very established locations in mostly developed markets.
Importantly, strong returns from the company’s global business (ex-North America) drove most of these returns. Growth coming from markets in Western Europe, China and Japan drove 12% system-wide sales growth, and this is the key area I think investors will continue to focus on.
Strong earnings and cash flow prospects
This growth has bled into strong bottom-line fundamentals, with Restaurant Brands maintaining a free cash flow margin around 25% this past quarter. With those kinds of margins, the company has plenty of room to continue returning capital to shareholders via dividend and buybacks, which the company intends on doing.
Indeed, Restaurant Brands remains a top dividend stock pick of mine, with its 3.6% dividend yield bolstered by strong growth prospects down the line. With solid margins and cash flows supporting financial flexibility and the potential for future dividend hikes, there’s a lot to like about this company’s capital appreciation and total return profile over the long term.
Outlook remains promising
While other companies may see a deteriorating outlook in the context of a consumer that appears to be trading down, companies like Restaurant Brands are in the driver’s seat to benefit from these macro shifts.
Indeed, the company’s status as a lower-cost option for those looking to dine out, as well as the brand loyalty Restaurant Brands has been able to generate over the years, could drive outsized returns relative to its peers in the months and quarters to come.
For investors looking for a long-term stock to consider adding in this current environment, Restaurant Brands remains one of my top picks right now. This stock looks very attractive on a relative basis, and I’ll continue to pound the table on this name until something material changes with its thesis.
