Restaurant Brands International (NYSE:QSR) Is A Buy After Business Update

Restaurant Brands International (NYSE:QSR)gave a business update that not only underscores the company’s positioning but the strength of the restaurant rebound in the U.S. The company says it is seeing a strong uptick in weekly comps across all of its segments that point to better than expected results for the quarter and the year.

Restaurant Brands International operates in three segments with businesses or franchises in over 100 countries. Company segments include Burger King, Tim Horton’s, and Popeyes which is showing sustained strength related to last year’s “chicken wars”. If you don’t recall, a Twitter-based feud between Popeye’s and Chic-Fil-A was soon joined by other chicken-sandwich peddlers sparking increased sales for all involved.

Burger King Comps Are Flat, Popeye’s Is Still Growing

On a segment by segment basis, Tim Horton’s was the worst-hit from the pandemic but bouncing back nicely. This chain is multinational but most locations are in Canada. Within Canada, reopenings are reported at 90% with comps improved from the -40% range to the high negative teens. Burger King, the company’s largest segment by far with over 18,800 locations, is seeing U.S. comps trend flat on a YOY basis which is something not expected to happen until later in 2020.

Unlike the other chains Popeye’s, long a laggard in the fast-food wars, emerged as the true winner. This segment, unlike others, never really saw its sales fall during the pandemic and is exhibiting strong growth now. Comps in this segment have been trending in the high-20% most of the year.

Upward Revisions Will Drive This Stock Higher

Looking at the estimates, QSR is expected to post a revenue decline of 27% for the 2nd quarter of 2020 but that may be far off. Simply meeting the consensus for the 2nd quarter puts 2020 YTD revenue at $2.26 billion. With consensus for the year at $4.96 billion that leaves only $2.70 billion for the second half, or $1.35 billion per quarter.

Assuming comps at BK’s are at least flat YOY through the second half, and that Popeye’s growth at least offsets Tim Horton’s weakness, revenue in the second half should be pretty close to flat YOY. Revenue in the second half of 2019 averaged $1.47 for the quarter. That’s a net difference of $0.24 billion or 8.1% in the second half of the year.

The bottom line? The consensus outlook for all of 2020 is off and sets the market up for a round of upward revisions from the analysts. The analysts are, in general, already bullish on this stock but that doesn’t mean they can’t get more bullish. The average rating is a buy but there are still 8 of the 30 sitting on the fence and one bear to sway.

The Technical Outlook: Bullish To Very Bullish

The technical outlook for Restaurant Brands is bullish to very bullish with one caveat in mind. The current consensus target is sitting right at a key technical level and could restrain bullish activity if the analysts fall out of love with this stock. That aside, today’s action is confirming support at the $52 level and indicating a potential starting point for the next leg of the rally.

The indicators are still mixed so some caution is warranted although the bias is upward. The current set up is consistent with support at the current price levels and may show a buy signal soon. If so, a move above the recent high near $54 is expected and with it a possible retest of the highs set in 2019. Until then, investors can collect a reasonably healthy 3.90% dividend. I say reasonably healthy because the balance sheet is strong, the rebound looks strong, and the outlook for next year is robust despite this year’s 100% payout ratio.