All figures in U.S. Dollars.
Analysts Brian Bittner and Michael Tamas from Oppenheimer boosted their rating on the stock to Outperform from Perform, with a $70 price target. They write that they’ve long viewed the owner of the Burger King and Tim Horton franchises as attractive, but they think that now is a good time to buy, as they’ve recently upped their 2018 estimates and think the Street may be underestimating its earnings power.
From their note:
Our math suggests base-case EPS in ’18E is $2.70+ vs. Street’s $2.42E (we model $2.72). This incorporates accretion from: 1) redemption of high-cost preferred stock (redeemable in December) using smartly secured sources of cash, and 2) refinancing 2014 Notes (callable in October). We exclude any operational upside from better SSS, cost improvements/synergies or unit growth acceleration.
In addition, they like the company’s recent acquisition of Popeye’s, which they see pushing its unit growth to about 7%, compared to 2.5% for peers. They also think that Burger King and Tim Hortons will see improving same-store sales trends.
Popeye’s acquisition provides massive new growth pipeline for QSR’s 22,000- unit global network. Popeye’s 2,700 unit-footprint is under-penetrated yet still No. 2 global chicken player to KFC’s 21,000 units. When 3G acquired BK in 2010, unit growth was only 150/year vs. 700+/year now. We expect similar enhancements to Popeye’s under QSR’s global franchisee roster, which could boost QSR’s unit growth to ~7% (well above 2.5% franchised peers).
BK and TH (90+% of profits) are attractive assets. Both are 100% franchised with strong unit growth profiles (+5%), lean cost structures and efficient capex. The brands are well-positioned competitively with strong historical SSS performances. We also believe SSS are set to accelerate from 1Q’s flattish trend as comparisons materially ease, catalytic menu innovation rolls-in and technology opportunities unfold.
Restaurant Brands is up 2% to $58.58 in recent trading, and has gained nearly 23% since the start of the year.