Restaurant Brands: A Growth Story Missing A Solid Base

LONDON, UNITED KINGDOM - 2019/08/09: Fast food restaurant Burger King seen in central London. (Photo by Steve Taylor/SOPA Images/LightRocket via Getty Images)

Restaurant Brands International Inc. (QSR) plans to grow its restaurant network to 40,000 globally in 8-10 years, at nearly 4.4% annual compound growth rate (CAGR). Using a 10-year forecast period and based on the recent performance metrics, I estimate revenue to grow at a c. 4.8% CAGR. In contrast, when the restaurant count increased by a c. 9.9% CAGR during 2015-2018, RBI’s top line grew at c. 9.8% CAGR backed by acquisitions.

The modest target spanning a decade hasn’t excited investors. A relative valuation using the median forward PE from 2013-2018 and the current consensus EPS estimate results in only a moderate upside to the stock. A DCF valuation approach with assumptions based on recent performance metrics for the company and above-average margins yield a price target of $77.58 with a c. 5.4% upside. Despite the peer-leading dividend yield of the stock, the modest capital gain does not warrant a buying opportunity. However, if the company efficiently uses its capital and lifts its sales to capital ratio to the levels seen in the past, the upside can significantly improve.

Read the Full Article on Seeking Alpha at:

https://seekingalpha.com/article/4291223-del-taco-slow-growing-debt-heavy-firm-needs-catalysts-upside

Disclosure: I/We have no investments in the stocks mentioned in the above article and don’t intend to open any within the next 72 hours. I wrote this article for myself, and it expresses my opinion. I/We receive no compensation, nor do I/We have any business relationship with any companies whose stocks are mentioned in the article.

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