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Why Did Restaurant Brands’ Share Price Climb More Than 1.5x In 3 Years?

Restaurant Brands International’s (NYSE: QSR) stock price has increased more than 1.5x from $47.70/share in August 2016 to $74.60/share in August 2019. The increase was primarily driven by a continuous increase in Total Revenue and Net Income margin. Revenue growth and margin increases are expected to continue in FY 2019. A positive outlook after a change in management has also driven a rise in the price-to-earnings (P/E) multiple of the company since the turn of the year.

You can view the Trefis interactive dashboard – Restaurant Brands: Why did the stock grow 1.5x in 3 years? In addition, here is more Consumer Discretionary data.

Restaurant Brands’ Revenue saw a steady increase over the years:

  • Restaurant Brands’ revenues have increased by 29.2% from $4.14 billion in 2016 to $5.36 billion in 2018, adding close to $1.22 billion to its revenue base.
  • Revenues are further expected to increase at a rate of 7% to $5.73 billion in 2019, which would mark an addition of over $1.59 billion to total revenues over three years (2016-2019).
  • All 3 operating segments are expected to continue their growth and contribute to overall revenue growth.
    • Burger King segment is expected to continue its strong growth and expected to post revenue of $1.8 billion in 2019. This is in line with the expansion plan the company has for the franchise.
    • Tim Hortons segment has been steadily growing and is the company’s highest contributor to Total Revenue. Trefis estimates the segment to continue its steady growth and post revenue of nearly $3.5 billion in 2019.
    • Popeyes Louisiana Kitchen segment is the newest, but has seen strong growth since the takeover by Restaurant Brands International. We expect the growth to continue as the company continues to expand by adding more restaurants. Trefis estimates revenue to be around $447.3 million for 2019.

Improvement In Profitability:

  • Net income margin increased sharply to 13.7% in 2017 primarily due to a tax benefit of $134 million offset by a sudden increase in SG&A expenses to 22.7% of Total Revenue.
  • In 2018 the statutory tax rate fell, which brought the effective tax rate to 17.2% and Net Income margin to 11.4% for 2018. Trefis estimates further improvement in margin to around 12.3% in 2019.

Improvement in Multiple:

  • Restaurant Brands’ P/E multiple fell to 19.8x in 2018 before rising back to 28.2x in August 2019 primarily due to the positive outlook since the turn of the year with new management.
  • A similar trend was observed in close rival Dunkin’ Brands as the multiple as it fell to 23.6x in 2018 before rising back to 29.2x in August 2019. Yum brands also followed the same trend as the multiple as it fell to 18.7x in 2018 before rising back to 27.8x in August 2019.
  • McDonald’s is the only competitor compared here where we see a continuous rise in the multiple.

Higher multiple and a positive outlook bodes well for Restaurant Brands’ stock and fundamentals. As per Restaurant Brands Valuation by Trefis, we have a price estimate of $74 per share for the stock.

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