We are initiating coverage on
Burger King Worldwide Inc.
) with an Outperform recommendation. We are positive on the
company's strong brand positioning in the quick service
restaurant (QSR) segment, its ability to post solid earnings
growth in recent times; a strong overseas presence and several
Why an Outperform Recommendation?
Burger King is the world's second largest fast food hamburger
restaurant (FFHR) chain, operating for more than 50 years. It
operates in the FFHR category, the largest category in the quick
service restaurant (QSR) segment. The QSR segment is the largest
restaurant segment in the U.S., having grown at an annual rate of
3% over the past 10 years ending Nov 2012. At the end of 2012,
Burger King accounted for nearly 12% of total FFHR consumer
spending in the US, thereby commanding a major share of the total
The fast food chain's earnings have not fallen short of the Zacks
Consensus Estimate in any of the quarters since Jun 2012. In the
recently concluded second quarter, despite a year-over-year
revenue decline, increased EBITDA and lower interest expense led
to higher earnings. Also, Burger King's second quarter results
signaled a sequential improvement across most regions and
Burger King offers immense growth potential worldwide. In the
recent times, it has initiated ventures in key markets like
Russia, China, Mexico, France, Central America, South Africa, the
Nordic countries, Singapore, Malaysia, Korea and Vietnam.
Focus on franchising remains another sweet spot on the company's
growth story. At the end of Dec 2012, 97% of the Burger King
units were franchised. Most of Burger King's future unit growth
will be achieved through franchising. Management expects to have
100% of its system franchised by the end of 2013 since it
believes that franchising a large chunk of its system will
facilitate earnings and return on equity growth and lower its
capital requirements. Alongside, free cash flow continues to
grow, allowing reinvestment for increasing brand recognition and
enhancing shareholder return.
This hamburger chain has also been investing heavily in
sales-building initiatives to focus on some key areas of
operations like a re-imaging program, menu innovation and
balanced marketing mix.
The company also initiated a delivery program namely 'BK
Delivers' in 2012. This initiative was intended to take Burger
King beyond its outlets and deliver products to its customers at
their places. After its inception, this Zacks Rank #2 (Buy)
company opened more than 75 delivery units in the U.S. and
several more are in the offing. The expansion trail confirms that
the delivery program is gaining considerable customer acceptance,
which is why we believe that the delivery system will be a
significant growth driver in the years to come.
Other Stocks to Consider
Others players in the same industry, which look attractive at
current levels include
CEC Entertainment Inc.
Domino's Pizza Inc.
AFC Enterprises Inc.
), all carrying a Zacks Rank #2.
AFC ENTERPRISES (AFCE): Free Stock Analysis
BURGER KING WWD (BKW): Free Stock Analysis
CEC ENTERTANMNT (CEC): Free Stock Analysis
DOMINOS PIZZA (DPZ): Free Stock Analysis
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