Over the past few quarters, the U.S. restaurant space has not been too enticing for investors. Consumer behavior has been volatile and their willingness to spend on eating out diminished due to higher costs. Evidently, same-store sales growth had been dull in a difficult sales environment.
However, this may turn out to be only transitory as the economy remains robust on the back of growing income and solid employment numbers. Consumer spending has also been in fine fettle of late.
Thus, investors should not shy away from putting money into this space and cash in on the bountiful opportunities. In fact, there are a number of companies with a decent performance history and strong fundamentals that seem to be unperturbed by the plight, thereby signaling a profitable investment opportunity.
One such company is Restaurant Brands International Inc. (QSR - Free Report) that continues to reflect strength in several areas and should make a value addition to your portfolio.
Headquartered in Miami, FL, Restaurant Brands came into existence with the merger of Tim Hortons Inc. and Burger King Worldwide Inc. It is now the parent company of these two iconic quick-service restaurant brands. These independently operated brands have been serving customers for more than 50 years.
Why is Restaurant Brands a Solid Choice?
Stock Price Movement: Restaurant Brands’ shares have gained 14.9% year to date while the Zacks categorized Retail-Restaurants industry saw a decline of 2.3% over the same time frame. While any stock can see a spike in price, it takes a real winner to consistently outperform the market. We noticed that Restaurant Brands has outperformed the industry in all of the time frames we considered – four-week, 12-week, 52-week as well as year to date.
Earnings & Revenue Growth: Arguably, nothing is more important than earnings growth as surging profit levels are often an indication of strong prospects (and stock price gains) for the company in question.
While Restaurant Brands has a historical EPS (earnings per share) growth rate of 16.0%, compared with the industry average of 11.1%, investors should really focus on its projected growth. Here, the company is looking to grow at a rate of 13.7%, thoroughly crushing the industry average, which calls for EPS growth of just 9%.
Propelling the earnings forward is the company’s solid revenue growth story. Notably, the projected sales growth for the current year stands at 8.1%, much higher than the broader industry’s estimate of 3.2%.
Solid Comps Growth & Various Initiatives: Restaurant Brands has been witnessing comps growth at both the brands – Tim Hortons and Burger King – in the last few quarters backed by menu innovation, value meals, re-imaging and premium offerings. We expect these sales-boosting initiatives to continue boosting comps, going ahead.
We are also encouraged by the company’s augmented focus on enhancing guest experience and increasing franchisee profitability to create value for all of its stakeholders. Moreover, Restaurant Brands’ efforts to grow its global restaurant footprint at both its iconic brands should further drive the stock’s performance.
Earnings History and Estimate Revisions: Restaurant Brands’ has beaten earnings estimates in each of the trailing seven quarters, with an average beat of 19.20% in the last four quarters.
Meanwhile, over the past 60 days, the Zacks Consensus Estimate increased 2.9% and 13.1%, respectively, for 2017 and 2018 earnings. The positive earnings estimate revisions indicate analysts’ confidence and substantiate the Zacks Rank #2 (Buy) for the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Stocks to Consider
Other favorably placed stocks in this sector include Potbelly Corporation (PBPB - Free Report) , Dave & Buster's Entertainment, Inc. (PLAY - Free Report) and Darden Restaurants, Inc. (DRI - Free Report) . All these stocks carry the same Zacks Rank as Restaurant Brands.
The Zacks Consensus Estimate for Potbelly’s 2017 earnings climbed 2.2%, over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 39.82%.
Dave & Buster's earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 37.81%. Meanwhile, for fiscal 2017, EPS is expected to improve 35.2%.
Darden’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 2.57%. Further, for fiscal 2017, EPS is expected to grow 11.2%.
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