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Restaurant Brands Down 14% in 6 Months: Will It Recover?

Zacks Equity Research

Shares of Restaurant Brands International Inc. QSR have decreased by 13.8% compared with the industry’s decline of 1.1% in the past six months. However, its various sales-boosting initiatives coupled with solid expansion efforts are likely to bring the stock back on track.

We believe there is still momentum left in this Zacks Rank #2 (Buy) stock, which is reflected in its impressive long-term earnings growth rate of 11.1%.

Let’s delve deeper into the factors that make this stock a solid investment choice in spite of its lackluster run on the bourses.

Sales-Building Efforts Drive Top-Line Growth

Restaurant Brands believes that there is a huge opportunity to grow all its brands around the world by expanding presence in existing markets and entering new markets. It continues to evaluate opportunities to speed up international development of all the three brands by establishing master franchisees with exclusive development rights and joint ventures with new and existing franchisees.

Currently, the company has more than 26,000 restaurants worldwide, which includes in excess of 18,000 restaurants at Burger King. System-wide sales grew approximately 8% in the last reported quarter.

Restaurant Brands is encouraged by long-term prospects of the Tim Hortons brand and is committed to keep up with the international growth strategy of expanding the brand around the world. In this regard, it formed master franchise joint venture partnerships for the brand in Mexico and Spain.

Moreover, the company is optimistic about the major expansion opportunity that lies ahead for the brand in the United States. The regions where it has signed development agreements include Cincinnati, Columbus, Indianapolis, Minneapolis, Cleveland and Youngstown.

Meanwhile, Restaurant Brands is investing heavily in technology-driven initiatives like digital ordering to boost sales. Furthermore, it launched Burger King mobile order and pay app in the United States. The company continues to expand the size of its delivery program, with availability in nearly 3,500 restaurants in the United States and more than 8,700 restaurants worldwide.

Focus on Menu Innovation

Restaurant Brands continues to focus on improving its level of service through comprehensive training, improved restaurant operations, reimaging efforts and attractive menu options to enhance overall guest satisfaction, and thereby drive comps.

During the third quarter, the company reinvented its donut line up with premium donuts that include maple bacon dream donut and the PB&J dream donut. It also plans to roll out these dream donuts across Canada. The company also introduced nitro bar that features nitro cold brew and nitro iced teas, and will be testing its Nitro Line in a few urban locations in early 2020.

Key Picks

Some other top-ranked stocks in the same space include Chuy's Holdings, Inc. CHUY, Denny's Corporation DENN and Ruth's Hospitality Group, Inc. RUTH each sporting a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chuy’s, Denny’s and Ruth's Hospitality Group have impressive long-term earnings growth rate of 17.5%, 9% and 13.5%, respectively.

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