Its Time to Reserve Some Restaurant Brands International Shares

Investors looking for a play on the quick service restaurant (QSR) rebound should look no further than Restaurant Brands International (NYSE:QSR). The company behind the Burger King, Popeye's Louisiana Kitchen, and Tim Horton's restaurant chains is expected to be a major beneficiary of increased customer traffic in the post-pandemic world.

With dining rooms closed or limited for most of the past 15 months, Restaurant Brands has found success by focusing on its drive-through channel. And with QSR chains expecting a preference for drive-through to persist in the post-COVID world, those that invest in the fast lane, are likely to see faster growth in the years ahead.

 How Did Restaurant Brands International Perform in Q1?

The new fiscal year got off to a good start for Restaurant Brands. Revenue increased 2.9% to $1.26 billion due to higher delivery, takeout, and drive-through volumes. Adjusted earnings per share of $0.55 were up 3.8% over the prior year period. Analysts were expecting a 5.7% EPS decline, so the result was a bit of an eyebrow raiser.

The year-over-year growth was led by same-store sales increases at the Burger King and Popeye's franchises. The fact that Tim Horton's was the laggard is a good thing because this side of the business should get a big boost when office workers make their comeback.

The first-quarter growth was a welcomed sign for a company that experienced an 11% decline in sales and a 28% drop in profits last year. The 0.7% same-store sales growth was also a nice change of pace following two years of same store sales declines.

What are Restaurant Brands International's Growth Prospects?

With the summer months upon us, many people will be hitting the highways for the first time in over a year. Many travelers that would normally hop on a plane will probably opt for the relative safety of a road trip. This means much of our pent-up travel demand will be released by driving long distances—and making pit stops at roadside Burger Kings, Popeye's, and Tim Horton's. More trucks on the roads supporting the increased economic activity should also equate to higher rest stop traffic.

At the same time, the CDC's move to turn back the clock on mask guidance, has companies contemplating a sooner than expected return of its workforces. As employees reacclimate themselves to the office routine, more mid-commute coffee stops, and away-from-home lunch breaks will equate to more revenue for Restaurant Brands.

To capitalize on the pending surge in customer traffic, the QSR chain will keep the spotlight on its drive-through business. Customers have grown increasingly comfortable with the convenience and safety of drive through during the pandemic and Restaurant Brands plans to build off that success.

It also plans to make improvements to its Burger King value menu, an area it has lagged McDonalds and Wendy's. Even at fast-food chains, people are in the hunt for a good bargain these days, so making progress with the value menu could go a long way in attracting more customers.

And with almost half of its revenue generated outside the U.S., developments in international travel will also be a major factor in Restaurant Brands growth. Signs of increased business and leisure travel would allow the company to press the accelerator on its plans to expand its 26,000-plus location footprint by about 5% annually.

 Is Restaurant Brands Stock a Buy?

Like other QSR players, Restaurant Brands International has recovered nicely from its March 2020 low. Yet it still sits approximately 14% from its pre-pandemic peak of $79.46 from nearly two years ago. There's good reason to believe it will hit the $80 mark by this time next year.

Of the 18 sell-side analysts that have offered an opinion in the last three months, most call Restaurant Brands International a 'buy'. None consider it a 'sell'. Multiple analysts have an $80 price target and Wells Fargo sees the stock heading to a Street-high $83. This is some decent upside for a stock with an easy-to-understand business model centered around selling burgers, chicken sandwiches, and donuts.

At 26x forward earnings, the stock is trading below its peer group average of 30x and warrants multiple expansion. Restaurant Brands has some of the best growth metrics and profit margins in the QSR space. Over the last five years, revenue growth has outpaced its peer group by almost 2% and its net profit margin is twice the industry average.

Restaurant Brands also has one of the largest dividends yields (3.1%) after the company boosted its dividend last month. Buying the stock here should satisfy both the growth and income cravings of the long-term investor.