Here's Why You Should Retain Restaurant Brands (QSR) Stock
Restaurant Brands International Inc. QSR is likely to benefit from expansion efforts, strategic investments and the loyalty program. Also, the emphasis on boosting advertising fund contributions from participating franchisees bodes well. However, inflationary pressures are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Restaurant Brands believes there is a huge opportunity to grow all its brands worldwide by expanding its presence in existing markets and entering new markets. During the third quarter of 2022, the company opened four locations in India and registered growth in the Middle East, Philippines, Mexico and Monterrey. It also opened restaurants in Houston and Texas. Also, it stated progress with new partnership and development deals across international markets for Popeyes. The company intends to boost Popeyes’ presence in Indonesia, South Korea and France. QSR intends to evaluate opportunities to ramp up international development by establishing master franchisees with exclusive development rights and joint ventures with new and existing franchisees.
During the third quarter of 2022, the company continued foundational improvements across menu innovation, digital and operations. QSR officially launched its Reclaim the Flame plan to enhance all aspects of the guest experience and advance sales in the United States. The company initiated Fuel the Flame advertising co-investment with the launch of You Rule. With an investment of $120 million, the company anticipates the initiative to boost advertising fund contributions from participating franchisees through 2028.
The company initiated a $250-million Royal Reset investment comprising Royal Reset Refresh and Royal Reset Remodel program to increase its media firepower, grow traffic and amplify the fundamental improvements. Royal Reset Refresh involves a $50-million investment in restaurant technology, kitchen equipment and a building enhancement refresh program. The Royal Reset Remodel program provides access to $200 million of funding for high-quality, high-return remodels. The company anticipates the program to cover half of the restaurants across its system over the next two years.
The company’s loyalty program is gaining popularity. Restaurant Brands stated that following a rapid ramp-up phase, nearly half of the customers pay through Tim's Rewards. During the second quarter of 2022, the company’s in-store loyalty sales increased double digits year over year. It reported heightened guest engagement backed by integrated marketing campaigns. With significant progress in user experience and more active users, the company is optimistic about its potential for the respective brands over the long term. The company intends to integrate loyalty programs into digital boards to derive synergies.
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In the past three months, shares of Restaurant Brands have gained 15.7% compared with the industry’s growth of 8.6%.
The coronavirus crisis has rattled the Retail - Restaurants industry and Restaurant Brands is not immune to the aftereffects. Pandemic-induced restrictions, labor challenges and inflation pressures have taken an enormous toll on the company.
Increases in cases and new variants caused certain markets (including China) to re-impose temporary restrictions due to government mandates. The company anticipates local conditions to continue to dictate limitations on restaurant operations, capacity, and hours of operation. Also, decline in traffic from pre-pandemic levels is a concern. The company intends to monitor the situation on a regular basis to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
Restaurant Brands currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Darden Restaurants, Inc. DRI, McDonald's Corporation MCD and Yum! Brands, Inc. YUM.
Darden carries a Zacks Rank #2 (Buy). DRI has a long-term earnings growth rate of 9.8%. Shares of DRI have gained 7.9% in the past year.
The Zacks Consensus Estimate for Darden’s 2023 sales and earnings per share (EPS) suggests growth of 7.9% and 5.4%, respectively, from the year-ago period’s reported levels.
McDonald's carries a Zacks Rank #2. MCD has a long-term earnings growth rate of 8.2%. Shares of MCD have gained 3.6% in the past year.
The Zacks Consensus Estimate for McDonald's 2023 sales and EPS suggests growth of 3.4% and 5.5%, respectively, from the year-ago period’s reported levels.
Yum! Brands currently carries a Zacks Rank #2. YUM has a long-term earnings growth rate of 11.8%. Shares of YUM have gained 1.4% in the past year.
The Zacks Consensus Estimate for Yum! Brands’ 2023 sales and EPS suggests growth of 6.3% and 15.6%, respectively, from the year-ago period’s reported levels.
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