Restaurant Brands International (NYSE:QSR) Poised For Strong 2021

Restaurant Brands International Is The Best Value In Quick-Service

Going on the assumption that fast-food restaurants are on the brink of a major rebound in 2021 the next question is which one is the best buy. Simply from a value/yield perspective Restaurant Brands International (NYSE:QSR) is by far the best choice but that is not the only reason to buy it. With a vaccine led reopening on the horizon, this company is on track to resume growth and outperform its expectations. In terms of yield, the company yields a solid 3.4% to lead its group while trading at a relatively low valuation. For those not in the know, Restaurant Brands International is the parent of Burger King, Popeye’s, and Tim Hortons brands.

Restaurant Brands Offers Growth, Value, And Yield

The stock is trading about 28X this year’s and 22X next year’s earnings which is not much of a bargain compared to the broad market but there are factors to consider. The first is that Wendy’s (NASDAQ:WEN), the highest valued fast food stock, is trading about 38X and 30X its earnings while McDonald’s (NYSE:MCD) about 35X and 25X. That’s a big difference.

When it comes to growth, Wendy’s is earning its valuation with an expected CAGR in the mid to high 20% range over the next 3-5 years. Yum! Brands (NYSE:YUM) is another high-flyer trading at 32X its earnings, it is expected to grow at a steady CAGR in the mid-teens. Restaurant Brands International is expected to rebound strongly in 2021 (about 20%) and then slow to a CAGR in the low double-digits over the following 3 to 5 years. McDonald’s is only projecting low to mid-single-digit growth over the long term.

The second factor to consider is yield. Restaurant Brands International is yielding about 3.4% with shares trading at $61 while Wendy’s is closer to 1.25%, McDonald’s 2.40%, and Yum! Brands 1.72%. Jack In the Box is trading at a deep discount relative to its peers but only yields half of what you get from Restaurant Brands International so not really a comparison. There is expected growth at Jack in the Box but not enough to offset the value/yield proposition. The risk with QSR's dividend is that earnings and free cash flow are tight in 2020 but that problem will dissipate in 2021.

The Analysts Like Restaurant Brands International

The analysts like Restaurant Brands International and are expecting a major rebound in 2021. The consensus sentiment has been a solid Buy all year, that hasn't changed much, what’s been changing however is the consensus price target. The consensus price target has crept up 3.75% over the last 90 days and is likely to keep moving higher in the coming weeks. The current consensus is about 3.5% above recent price action but it's low compared to the trend. The recent trend in analysts calls has the stock trading closer to $70 which is about 13% upside. The most recent note came out from Citigroup. The firm initiated coverage with a Buy and set a price target of $74 to match the Wall Street High.

Wells Fargo had this to say about the company in its note to shareholders. "We think 2021 will be a year when sales rebound in anchor markets (TH Canada & BK US) on the back of brandlevel initiatives and a reacceleration of unit growth for its primary growth engine. Shares have underperformed the S&P 500 on a 1/3/5-year basis & global quick service peers and we see 2021 shaping up to reverse that trend on better visibility into top-line and FCF growth accelerating."

The Technical Outlook: Gearing Up For A Move Higher

Shares of QSR rebounded from the March low but only regained the pre-COVID levels above $60 very recently. Since then, price action appears to be finding support at the $60 level and gearing up for another move higher. The indicators are both consistent with the presence of support and have begun giving off bullish signals. The first signal is a crossover in the stochastic that may be confirmed by MACD in the coming days. Upward movement may find some resistance at the $63.50 level but once that is broken down a move to new highs is expected. If price action fails to confirm support at current levels and falls below $60 we may see it fall to $56 and $52. Earnings are set to be released the last week of January.