Restaurant Brands International Inc. (QSR) Stock Analysis

Ticker: QSR
Market Capitalization: $22.39 Billion
Enterprise Value: $39.29 Billion
Shares Outstanding: 323.66 Million
Sector: Consumer Discretionary / Restaurants
Industry: Quick-Service Restaurants

1. Company Overview

Restaurant Brands International Inc. (QSR) is a global leader in the quick-service restaurant (QSR) industry, operating a diverse portfolio of renowned brands. These include Tim Hortons (TH), Burger King (BK), Popeyes Louisiana Kitchen (PLK), and Firehouse Subs (FHS). Founded in 1954 and headquartered in Toronto, Canada, QSR has established a significant presence in North America and internationally. The company’s strategic focus on franchising, brand diversification, and operational efficiency positions it well to capitalize on the growing demand for convenient and affordable dining options.

2. Financial Performance

Revenue and Growth

• Trailing Twelve Months (TTM) Revenue: $7.48 Billion
• Revenue Growth (YoY): +10.27%

QSR has demonstrated consistent revenue growth, with a TTM revenue of $7.48 billion, marking a 10.27% increase year-over-year. This growth is indicative of the company’s effective expansion strategies, strong brand performance, and resilience in the competitive QSR market. Despite a slight deceleration compared to previous years, the steady increase underscores QSR’s ability to maintain momentum through strategic initiatives and market penetration.

Profitability

• Net Income (TTM): $1.27 Billion
• Profit Margin: 16.99%
• Operating Income (TTM): $2.23 Billion
• Operating Margin: 29.84%
• EBITDA (TTM): $2.44 Billion
• EBITDA Margin: 32.57%

QSR showcases robust profitability metrics. The company reported a net income of $1.27 billion for the TTM period, translating to a healthy profit margin of 16.99%. Operating income and EBITDA figures further highlight QSR’s operational efficiency, with margins of 29.84% and 32.57%, respectively. These strong margins reflect effective cost management, high brand value, and successful operational strategies within the competitive QSR landscape.

Earnings Per Share (EPS)

• EPS (TTM): $4.00
• EPS Growth (YoY): +22.13%

QSR maintains a solid EPS of $4.00, with a year-over-year growth of 22.13%. This growth underscores the company’s increasing profitability and effective management strategies. The consistent rise in EPS highlights QSR’s ability to enhance shareholder value through earnings growth and efficient capital allocation.

3. Valuation Metrics

• Trailing P/E Ratio: 17.30
• Forward P/E Ratio: 19.10
• Price-to-Sales (PS) Ratio: 2.91
• Price-to-Book (PB) Ratio: 7.15
• Price/Earnings to Growth (PEG) Ratio: 1.93
• Enterprise Value to EBITDA (EV/EBITDA): 16.14
• Enterprise Value to Free Cash Flow (EV/FCF): 33.39

QSR’s valuation metrics present a balanced perspective:

• P/E Ratios: The trailing P/E of 17.30 and forward P/E of 19.10 are relatively moderate, suggesting that the stock is fairly valued based on current and projected earnings. These ratios indicate investor confidence in QSR’s sustained profitability and growth prospects.

• PS and PB Ratios: With a PS ratio of 2.91 and a PB ratio of 7.15, QSR is trading at a reasonable premium relative to its sales and book value. These elevated ratios reflect strong market confidence but also imply that the stock may be somewhat overvalued compared to its fundamental metrics.
• PEG Ratio: At 1.93, the PEG ratio suggests that the stock is slightly overvalued when considering its growth prospects. A PEG above 1 typically indicates overvaluation, though QSR’s consistent growth may justify this premium to some extent.
• EV Ratios: The EV/EBITDA and EV/FCF ratios of 16.14 and 33.39, respectively, are indicative of a premium valuation relative to earnings and free cash flow. These ratios should be considered in the context of the company’s growth trajectory and market position.

Overall, while QSR exhibits strong profitability and growth potential, its valuation metrics suggest that the stock is priced at a reasonable premium, warranting careful consideration by investors.

4. Financial Position

Liquidity Ratios

• Current Ratio: 0.78
• Quick Ratio: 0.64

QSR’s liquidity ratios are below the industry average, with a current ratio of 0.78 and a quick ratio of 0.64. These figures suggest potential challenges in meeting short-term liabilities with current assets, indicating a relatively tight liquidity position. Investors should monitor the company’s ability to manage working capital effectively to avoid liquidity constraints.

Leverage Ratios

• Debt-to-Equity Ratio: 3.22
• Debt-to-EBITDA Ratio: 6.56
• Debt-to-Free Cash Flow Ratio: 13.56

QSR maintains a substantial debt load, with a debt-to-equity ratio of 3.22, debt-to-EBITDA ratio of 6.56, and debt-to-free cash flow ratio of 13.56. These leverage ratios indicate significant financial obligations relative to the company’s earnings and cash flow, posing potential risks if earnings decline or cash flow generation weakens. High leverage may limit financial flexibility and increase vulnerability to economic downturns or rising interest rates.

Cash Position

• Cash & Cash Equivalents: $945.00 Million
• Total Debt: $15.97 Billion
• Net Cash Position: -$15.02 Billion

QSR has a net cash position of -$15.02 billion, highlighting a significant level of debt relative to its cash reserves. While the company’s substantial cash holdings of $945.00 million provide a buffer, the negative net cash position underscores the importance of effective debt management and the potential impact of interest rate fluctuations on financial stability.

5. Cash Flow Analysis

• Operating Cash Flow (TTM): $1.32 Billion
• Capital Expenditures (TTM): -$141.00 Million
• Free Cash Flow (TTM): $1.18 Billion
• Free Cash Flow Growth: -0.93% YoY
• Free Cash Flow Margin: 15.74%
• Free Cash Flow Per Share: $2.59

QSR generates solid operating cash flow of $1.32 billion, contributing to a substantial free cash flow of $1.18 billion. Despite a slight decline in free cash flow growth by 0.93% year-over-year, the company maintains a healthy free cash flow margin of 15.74%, indicating efficient conversion of revenue into cash. Positive free cash flow supports ongoing capital investments, debt servicing, and shareholder returns through dividends and buybacks.

6. Share Statistics and Ownership

• Shares Outstanding: 323.66 Million
• Shares Change (YoY): -0.33%
• Insider Ownership: 1.42%
• Institutional Ownership: 81.00%
• Float: 295.75 Million

QSR has slightly reduced its shares outstanding by 0.33% year-over-year, which can enhance earnings per share and potentially support the stock price. High institutional ownership at 81.00% indicates strong confidence from large investors, while insider ownership remains relatively low at 1.42%, suggesting limited direct control by company executives. The float of 295.75 million shares provides adequate liquidity and broad market participation.

7. Stock Performance and Market Sentiment

• 52-Week Price Range: $61.77 – $83.29
• Current Stock Price: $69.18
• 52-Week Price Change: +2.35%
• Beta: 0.95
• Relative Strength Index (RSI): 48.94
• Average Volume (20 Days): 1,498,086
• Short Interest: 2.35% of shares outstanding

QSR’s stock has experienced a modest increase of 2.35% over the past 52 weeks, currently trading below the midpoint of its historical range. A beta of 0.95 indicates that the stock has volatility similar to the broader market, suggesting it is less susceptible to market swings compared to higher-beta stocks. The RSI of 48.94 places the stock in a neutral zone, indicating balanced buying and selling pressure.

Short interest stands at 2.35%, reflecting limited bearish sentiment among investors. This relatively low short interest, coupled with strong institutional ownership, supports positive market sentiment and may contribute to further price appreciation, especially if the company continues to deliver solid financial performance.

8. Key Strengths and Opportunities

• Strong Revenue Growth: Consistent year-over-year revenue growth of 10.27% demonstrates QSR’s ability to expand its market presence and capitalize on increasing demand for quick-service dining options.
• Robust Profitability: High profit margins and substantial net income highlight effective cost management and strong revenue generation capabilities.
• Positive Free Cash Flow: Significant free cash flow supports ongoing investments, debt reduction, and shareholder returns through dividends and buybacks.
• High Dividend Yield: A dividend yield of 3.35% is attractive for income-focused investors, providing steady returns alongside capital appreciation.
• High Institutional Ownership: Strong backing from institutional investors enhances market confidence and provides stability.
• Global Brand Portfolio: Diverse brand portfolio including Tim Hortons, Burger King, Popeyes, and Firehouse Subs offers diversified revenue streams and reduces dependency on a single brand.
• Strategic Initiatives: Investments in technology, menu innovation, and international expansions can drive future growth and operational efficiencies.

9. Risks and Challenges

• High Leverage: A debt-to-equity ratio of 3.22 and a net cash position of -$15.02 billion indicate significant financial obligations. High leverage can limit financial flexibility and increase vulnerability to economic downturns or rising interest rates.
• Liquidity Concerns: Current and quick ratios below 1 suggest potential challenges in meeting short-term liabilities, necessitating effective working capital management to avoid liquidity constraints.
• Economic Sensitivity: As a player in the QSR industry, QSR is sensitive to economic cycles, consumer spending trends, and discretionary income levels, which can impact sales and profitability.
• Operational Risks: Factors such as supply chain disruptions, labor shortages, rising operational costs, and compliance with evolving health and safety regulations can affect profitability and operational efficiency.
• Competitive Landscape: Intense competition from other global and regional QSR chains, as well as emerging market players, may pressure QSR’s market share and pricing strategies.
• Altman Z-Score: With an Altman Z-Score of 1.35, QSR is below the threshold of 3, suggesting an increased risk of bankruptcy in the near term. This underscores the importance of vigilant financial management and debt reduction strategies.
• Dividend Sustainability: A payout ratio of 58.03% indicates that a significant portion of earnings is being distributed as dividends. While currently sustainable, any decline in earnings could impact dividend payments.

10. Conclusion and Investment Outlook

Restaurant Brands International Inc. (QSR) presents a compelling investment opportunity characterized by solid revenue growth, robust profitability, and attractive dividend yields. The company’s strategic positioning within the global quick-service restaurant industry, coupled with its diverse brand portfolio, supports its growth trajectory and resilience in a competitive market.

However, investors should be mindful of QSR’s high leverage and liquidity concerns, which introduce financial risks and may limit potential upside. The low Altman Z-Score further emphasizes the need for effective debt management to mitigate bankruptcy risks. Despite these challenges, QSR’s strong operational performance, positive free cash flow, and high dividend yield make it an attractive option for income-focused investors seeking exposure to the QSR sector.

Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult with a financial advisor before making investment decisions.