QSR

Will Q4 Results Help Extend The 20% Gain In Restaurant Brands' Stock Since Early 2023?

Restaurant Brands International is one of the largest fast-food restaurant chains in the world that operates Burger King, Tim Hortons, Popeyes, and, since late 2021, Firehouse Subs. The company is scheduled to report its fiscal fourth-quarter results on Tuesday, February 13. We expect Restaurant Brands International stock (NYSE: QSR) to see little to no movement with revenue missing expectations but earnings coming ahead of expectations.

In Q3, the company’s net restaurants grew 4.2%, with the Popeyes brand seeing the biggest increase in units on a percentage basis (11.3%). The revenue stream of QSR is directly influenced by the system sales it generates across its brands, which can be increased by growing restaurant sales or adding as many restaurants as possible. Tim Hortons, Popeyes, and Firehouse Subs are far less penetrated across international markets than McDonald’s or Burger King. That points to more room to open new restaurants and a longer runway for revenue growth.

QSR stock has shown strong gains of 25% from levels of $60 in early January 2021 to around current levels, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the increase in QSR stock has been far from consistent. Returns for the stock were -1% in 2021, 7% in 2022, and 21% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that QSR underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could QSR face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that Restaurant Brands’ valuation is $75 per share, which is nearly in line with the current market price. Look at our interactive dashboard analysis on Restaurant Brands Earnings Preview: What To Expect in Fiscal Q4? for more details.

(1) Revenues expected to be slightly below consensus estimates

Trefis estimates QSR’s Q4 2023 revenues to be around $1.8 Bil, marginally below the consensus estimate. QSR’s Q3 revenues grew 6% year-over-year (y-o-y) to $1.8 billion, fueled by strong same-store sales growth from all its segments. The company’s comparable sales rose 7.0% during the quarter, led by a 7.2% gain for the Burger King chain, a 6.8% rise for the Tim Hortons chain, and a 7.0% gain for the Popeyes chain. It should be noted that only locations that have been open for at least 13 months are included in its same-store sales metrics. For the full-year 2023, we expect QSR’s revenues to grow 8% to $7.1 billion.

2) EPS is also likely to beat consensus estimates marginally

QSR’s Q4 2023 earnings per share (EPS) is expected to come in at 77 cents per Trefis analysis, slightly above the consensus estimate. In Q3, the company’s net income fell to $364 million from $530 million a year ago, which led to EPS falling 6% y-o-y to $0.90. The decrease was primarily driven by income tax expense in the current year compared to an income tax benefit in the prior year, unfavorable FX movements, and loss on early extinguishment of debt. However, its adjusted EBITDA was up 9% y-o-y to $698 million – with all four segments seeing an increase.

(3) Stock price estimate in line with the current market price

Going by our QSR’s valuation, with an EPS estimate of around $3.26 and a P/E multiple of 23.1x in fiscal 2023, this translates into a price of $75, which is around the current market price.

It is helpful to see how its peers stack up. QSR Peers shows how Restaurant Brands’ stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 QSR Return -1% 19% 62%
 S&P 500 Return 3% 30% 123%
 Trefis Reinforced Value Portfolio 2% 40% 620%

[1] Returns as of 2/9/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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