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Restaurant Brands International Inc. QSR is poised to benefit from re-imaging initiatives, menu innovation and expansion efforts. Also, focus on loyalty program bodes well. However, dismal comps at Tim Hortons along with coronavirus-related woes are concerns.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Driving Growth
Restaurant Brands continues to focus on improving services through comprehensive training, better restaurant operations, reimaging efforts and attractive menu options. This will help the company enhance overall guest satisfaction and drive comps. Notably, the company expects to drive traffic by expanding the customer base and continuing to build brand leadership in food quality and taste.
During first-quarter 2021, the company made solid progress with regards to its core products with ingredients. This includes French toast sandwich, The Sourdough King and Cheesy Tots from Burger King and Cajun Flounder Sandwich from Popeyes. Also, the company initiated the roll out of hand-breaded chicken sandwich in half of its Burger King restaurants in the United States.
Restaurant Brands believes that there is a huge opportunity to grow all its brands around the world by expanding its presence in existing markets as well as entering new markets. To this end, the company continues to evaluate opportunities to ramp 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.
During first-quarter 2021, Tim Hortons announced new round of funding from Tencent (existing investor) as well as Sequoia Capital and Eastern Bell (new investors) to support the opening of 200 new Tim Hortons restaurants in China in 2021. Also, it projects to open 1500 restaurants over the initial term of the agreement. Meanwhile, the company announced plans to expand Popeyes in the U.K., India, Mexico and Saudi Arabia. Going forward, the company plans to open 1,000 Popeyes restaurants over the next 10 years.
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Shares of Restaurant Brands have gained 21.7% in the past year compared with the industry’s 32.7% growth. Notably, the dismal performance was primarily caused by the coronavirus pandemic. Although the company has reopened most of its restaurants, it is likely to witness dismal traffic due to social distancing protocols. During the first quarter, sales in Canada, Europe and Brazil were negatively impacted by the reimposed lockdowns.
Due to the pandemic, comparable store sales at Tim Hortons declined during first-quarter 2021. Comps at Tim Hortons fell 2.3% compared with 10.3% fall in the prior-year quarter. The downtick was primarily caused by temporary closures of certain restaurants, owing to the pandemic.
Zacks Rank & Key Picks
Restaurant Brands currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space include Dine Brands Global, Inc. DIN, Texas Roadhouse, Inc. TXRH and Ruth's Hospitality Group, Inc. RUTH, each sporting a Zacks Rank #1.
Dine Brands’ 2021 earnings are expected to surge 269.3%.
Texas Roadhouse has a three-five year earnings per share growth rate of 10%.
Ruth's Hospitality has a trailing four-quarter earnings surprise of 81%, on average.
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