“If anything is good for pounding humility into you permanently, it's the restaurant business.” Anthony Bourdain.
Restaurant Brands International Inc. (QSR - Free Report) , after having experienced its share of ups and downs, is currently one of the best-performing stocks in the U.S. restaurant space. With a Zacks Rank #2 (Buy) and decent share price appreciation, the stock is a profitable investment choice at the moment.
Shares of Restaurant Brands have outperformed its industry in the past three months. The stock has rallied 8.2% against the industry’s collective decline of 1.7%.
Moreover, an upward revision in earnings estimates for 2018 reflects analysts’ confidence in the company’s future earnings potential. Over the past 60 days, the Zacks Consensus Estimate for 2018 earnings has been revised upward by 0.4% to $2.69 per share. Further, the company delivered positive earnings surprise in each of the trailing four quarters, recording an average beat of 16.3%.
Let’s delve deeper into the factors that make this stock a solid investment choice at the moment.
Sales-Building Efforts Drive Top-Line Growth
Restaurant Brands continues to evaluate opportunities to speed up international development of all the three brands by establishing master franchisees with exclusive development rights, as well as joint ventures with new and existing franchisees. Apart from expansion strategies, the company continues to focus on improving its level of service through comprehensive training, improved restaurant operations, reimaging efforts and attractive menu options for enhancing overall guest satisfaction, and thereby driving comps. Restaurant Brands believes that new product development is a key driver of long-term success for its brands, and will continue to be in focus in 2018 and beyond. This is also expected to drive traffic by expanding customer base, spreading out into new dayparts, and continuing to build brand leadership in food quality and taste.
Subsequently, the Zacks Consensus Estimate for 2018 sales is pegged at $5.5 billion, suggesting 19.4% growth from 2017.
Franchised Model Safeguards Earnings
Given that almost 100% of the company’s current system-wide restaurants are franchised, its expenses are considerably low. Since the company signs franchise agreements for all the restaurants instead of operating them itself, this puts the burden of cost on the franchisees that operate businesses. The reduced capital requirements thus facilitate earnings. Alongside, free cash flow continues to grow, allowing reinvestment for increasing brand recognition and shareholders’ return. The fully franchised business model allows the company to use other people's money for expanding the brand more rapidly into various markets. Notably, Restaurant Brands witnessed year-over-year earnings growth in each of the trailing four quarters, backed by strong improvement in the top line. In 2018, Restaurant Brands’ earnings per share are expected to grow 28.1%, higher than the industry’s average predicted earnings growth of 14%.
A look at Restaurant Brands’ dividend yield shows that the stock is a rewarding investment choice for investors right now. The company’s current dividend yield stands at 3% compared with the industry’s figure of 0%.
Other Stocks to Consider
Other top-ranked restaurant stocks include Denny’s (DENN - Free Report) , Dunkin’ Brands (DNKN - Free Report) and Brinker (EAT - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Denny’s, Dunkin’ Brands and Brinker’s earnings for 2018 are projected to grow 15.5%, 12.8% and 10.3%, respectively.
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