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.
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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.