2023-11-07 22:10:38
Restaurant Brands International should continue to do well even as consumers try to save money, believes Mark Petrie of CIBC Capital Markets. (Photo: 123RF)
What to do with the titles of Restaurant Brands International, Nvidia and Canadian Tire? Here are some analyst recommendations likely to move prices soon. Note: the author may have an opinion completely different from that expressed.
Restaurant Brands International (QSR, US$67.80): the appetite for its dishes should remain
Restaurant Brands International should continue to do well even as consumers try to save money, believes Mark Petrie of CIBC Capital Markets after viewing its quarterly results.
According to him, his fast food counters are partly spared from the revision of discretionary budgets, even if the growth in his sales for the same comparable store slowed down in the last quarter.
In fact, the American Burger King and those of its international division, as well as the Tim Hortons, did not reach the targets that the analyst had set, although the banner behind the Timbits reached the consensus targets. So, while the appetite for its burgers is losing steam, its peers are exceeding forecasts, underlines Mark Petrie.
The latter recalls that since the start of the pandemic, the sales growth rate for a same store of Restaurant Brands is far from that of its peers, but the gap is gradually closing. However, it has fared better than them in terms of operating expenses and conversion of its free cash flow, he says.
During the next quarter, the company is expected to release 35 million US dollars (M$US) from the envelope of 120M$US that the company has dedicated to its “Fuel de Flame” marketing initiative. It did not affect it in the third quarter, observes the analyst.
In addition, most of the US$400 million from its “Reclaim the Flame” operation announced in 2022 to boost Burger King’s sales should be spent from the start of 2024. The company plans to carry out major work and revamp nearly 10% of its American restaurants.
In order to take into account this slowdown in its same-store sales growth rate, but also the recovery in speed which should result from future investments in 2024 and 2025, Mark Petrie has therefore revised his expectations to with regard to the title.
Its adjusted earnings per share in 2023 and 2024 therefore increased from $3.30 to $3.26, and from $3.69 to $3.57, respectively. Earnings before interest, taxes and depreciation, for its part, slipped for these same two periods from US$2,610 million to US$2,581 million, and from US$2,810 million to US$2,772 million.
In 2025, its earnings per share are expected to be around US$4.13, while EBITDA will reach US$3,048 million.
During the unveiling of its results, Restaurant Brands revealed that it had repurchased US$350 million worth of shares since the third quarter, reports the analyst. The news surprised him, but he remains convinced that the company will manage to reduce its leverage next year. According to him, it should reach a multiple of 4.3x by the end of 2024, and 3.7x in 2025.
The profitability of its franchises will be key to its growth, according to the analyst who will be particularly attentive to the update that the company should make when it reveals its fourth quarter results.
Granting it a “sector outperformance” recommendation, Mark Petrie nevertheless reduces the expected target price, now betting on $82 and not $85.
The company will, however, have to increase its number of establishments by 5% next year for the analyst to “maintain or increase its valuation”, he specifies in his note.
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