On Thursday, Goldman Sachs (NYSE:GS) initiated coverage on Restaurant Brands International (NYSE:QSR), assigning a Buy rating to the stock with an ambitious 12-month price target of $80. The firm's analysis highlights a significant business transformation at the company, fueled by a new management team and a concentrated effort to enhance franchisee profitability.
The company, which is behind popular chains such as Burger King, Tim Hortons, and Popeyes, revealed a five-year growth forecast earlier in February 2024. This outlook anticipates over 3% compound annual growth rate (CAGR) in comparable sales, more than 5% net restaurant growth, and an average of over 8% per annum system-wide sales and adjusted operating income growth through 2028.
Goldman Sachs sees franchisee profitability as a cornerstone for long-term growth. The firm's enthusiasm is particularly pointed towards the efforts at Burger King US, especially after the acquisition of Carrols Restaurant Group (NASDAQ:TAST) in May. This move is expected to add impetus to the ongoing modernization of Burger King stores in the United States.
The analyst believes that the completion of the store upgrades will contribute to average unit volume (AUV) improvements and will be integral to the broader turnaround at Burger King US. Additionally, the firm notes that Tim Hortons' expansion into the afternoon daypart and cold beverage platforms, along with Popeyes' product innovation, are key drivers for growth.
Goldman Sachs' earnings projections for Restaurant Brands International, which include an estimated $3.83 earnings per share (EPS) and $3.1 billion in EBITDA for the year 2025, align with the Factset consensus. The firm anticipates that as the new management's initiatives take effect, there will be a narrowing of the valuation gap compared to the company's historical absolute and relative to S&P EV/EBITDA range, leading to an accelerated double-digit EPS compound annual growth rate in 2025-2026.
In other recent news, Restaurant Brands International has been making noteworthy strides in the market. The company recently finalized its acquisition of Carrols Restaurant Group, the largest Burger King franchisee in the U.S., in an all-cash transaction valued at approximately $1 billion. This strategic move is part of RBI's "Reclaim the Flame" plan, which includes a $500 million investment to reimagine over 600 Carrols restaurants.
Simultaneously, the company has been receiving positive attention from analysts. TD Cowen reaffirmed its Buy rating on Restaurant Brands, emphasizing Burger King's strategic approach as a key factor for potential market share growth. Deutsche Bank (ETR:DBKGn) also adjusted its outlook on Restaurant Brands shares, increasing the price target from $87.00 to $90.00, following a robust first quarter with strong sales across all segments.
In addition, KeyBanc Capital Markets increased its price target on Restaurant Brands to $85, maintaining an Overweight rating on the stock. The firm's confidence in the company is bolstered by its performance in the first quarter of 2024, which showcased stronger-than-anticipated global same-store sales growth.
Lastly, in a bid to stay competitive in the fast-food market, Burger King, part of Restaurant Brands International, has announced the launch of a new $5 value meal deal. This strategic move places the fast-food chain ahead of its competitor McDonald's (NYSE:MCD) in offering a budget-friendly dining option. These are the recent developments for Restaurant Brands International.
InvestingPro Insights
As Restaurant Brands International (NYSE:QSR) embarks on its five-year growth forecast, InvestingPro data underscores the company's solid financial footing. With a market capitalization of $21.79 billion, QSR is trading at a P/E ratio of 17.54, reflecting investor confidence in its earnings potential. The company's commitment to shareholder returns is evident, having raised its dividend for 9 consecutive years, and with a current dividend yield of 3.37%. This dedication to consistent dividend payments, which have been maintained for 10 consecutive years, is a reassuring sign for income-focused investors.
Moreover, the company's revenue growth of 7.93% over the last twelve months as of Q1 2024, coupled with a gross profit margin of 39.77%, highlights its ability to translate sales into substantial earnings. An InvestingPro Tip points out that QSR is trading at a low P/E ratio relative to near-term earnings growth, suggesting that the stock could be undervalued given its growth prospects. Additionally, with low price volatility, investors looking for stability in their portfolio might find QSR an attractive option.
For those interested in deeper analysis, InvestingPro offers additional tips on QSR, which can be explored further at: https://www.investing.com/pro/QSR. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to a wealth of investment insights and data.
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