Investors looking for a recovery play may want to take a look at Restaurant Brands International (QSR), the owner of popular brands such as Burger King, Popeyes, and Tim Hortons, and one of the largest fast-food operators globally.
Shares in the Canada-based franchisor have recovered from their March 2020 pandemic-led losses, but a recovery in its underlying business remains a work in progress. As a result, QSR has lagged its peers like Chipotle Mexican Grill (CMG), which experienced a much stronger 2020.
QSR stock looks reasonably priced at current valuations, and with earnings set to improve through 2022, investors looking to get involved at current price levels could see gradual gains over the near term.
Why QSR Stock Could Continue To Trend Higher
There are two main reasons why Restaurant Brands International stock could hit new highs in the coming year.
First, of course, is the post-COVID recovery. As the vaccine rollout continues, there’s greater confidence in a full “return to normal” by the second half of 2021. This paves the way for sales and earnings, which dipped during the pandemic, to recover and even surpass pre-outbreak levels.
The second factor that could help move the needle for QSR is the company’s plans to further expand overseas. Working with local partners, the company plans to develop its Popeyes chain in new markets including India and Mexico.
The combination of both of these factors could provide a further boost to the company’s economic recovery, and improved results in the coming months could justify investors bidding up the share price.
Valuation Looks Reasonable
QSR is reasonably priced at around $65 per share, and with a forward price-to-earnings (P/E) ratio of 25x, is on par with its rivals, including Yum! Brands (YUM), which currently has a forward P/E of 26.8x.
Its current valuation may imply limited upside potential over the near-term, but with earnings projected to jump over 14% between 2021 and 2022, shares could still deliver solid returns over the next twelve months, even without any multiple expansion.
Earnings per share (EPS) consensus among analysts for 2022 is $3.04, which at its current Price-to-Earnings (P/E) multiple of 25x, implies a stock price of around $76 per share. This suggests more modest returns than over the past year but considering the fact that stronger performing names, like Chipotle, may be a bit overheated, QSR could still be warming up.
The recovery potential coupled with the lack of valuation concerns may present investors with one of the better opportunities available in the restaurant sector.
What Analysts Are Saying About QSR Stock
According to TipRanks, QSR stock comes in as a Moderate Buy based on 12 Buy, 4 Hold and 1 Sell recommendations. The average analyst price target of $67.94 implies that QSR is almost fully priced at current levels with around 4.5% upside potential from current levels over the next 12 months. Analyst price targets range from a low of $54.11 per share to a high of $80 per share. (See Restaurant Brands stock analysis on TipRanks)
Bottom Line: Gradual Gains Are A Possibility For Restaurant Brands International Stock
After bouncing more than 100% since hitting multi-year lows in 2020, some investors may expect QSR to continue to trade sideways over the near-term. But with earnings set to recover as the virus subsides, and with the expansion of its global footprint set to continue, gradual gains seem reasonable for investors wanting to buy the stock at current levels.
Returns are not likely to be on a par compared to the past year, but solid returns are a possibility, nonetheless.
Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
