Restaurant Brands International Inc. QSR is riding high on robust system-wide sales across its brands, solid expansion efforts, various sales building strategies and focus on franchise business model. As a result, shares of the company have gained 16% compared with the industry’s collective growth of 1.7% in the past three months. However, competition and increased labor wages are persistent concerns.
Restaurant Brands believes that there is an immense opportunity for expanding its brand presence across the globe by fortifying its foothold in existing markets as well as entering new markets. In fact, it continues to evaluate opportunities for accelerating international development of all its three brands by establishing master franchisees with exclusive development rights and via joint ventures with new and existing franchisees.
Also, the company is optimistic on the long-term growth prospects of the Tim Hortons brand and remains committed to deliver on its international growth strategy of expanding the brand worldwide. In this regard, the company formed master franchise joint venture partnerships (MFJVs) for the brand in Mexico and Spain. Moreover, the company is confident about the major expansion opportunity that lies ahead of the brand in the United States.
These apart, Restaurant Brands has a solid strategy at Burger King that focuses on enhancing restaurant image, technology, operations and marketing, which in turn might drive sustainable comps over the long run. As of now, the company has made significant progress with respect to remodeling and modernizing its restaurants in the United States.
In the United States, this Zacks Rank #3 (Hold) company launched Burger King mobile order and pay app. The Burger King restaurant count rose 6% year over year. Though this represents a modest sequential deceleration, the company is confident about its full-year outlook and has a robust pipeline for openings planned for the fourth quarter. Meanwhile, Restaurant Brands continues to expand the size of its delivery program with availability in nearly 3,000 restaurants in the United States and more than 7,000 restaurants worldwide.
Moreover, given that almost 100% of Restaurant Brands’ current system-wide restaurants are franchised, its expenses are considerably low. Since the company signs franchise agreements for all the restaurants instead of operating them itself, this puts the cost burden on the franchisees that operate the businesses.
Although Restaurant Brands’ fully-franchised model has a number of positives, it has its share of drawbacks and risks as well. Under this business model, the company’s prospects depend on its ability to attract new franchisees for all its brands and the willingness of franchisees to open restaurants in the existing and new markets. The company also has limited influence over its franchisees, as a result of which its ability to control restaurants’ operations, and implement operational initiatives and business strategies is restricted.
Let’s look at Restaurant Brands earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company. Over the past seven days, the Zacks Consensus Estimate for 2019 earnings moved south by a penny to $2.76.
Some better-ranked stocks in the same space are Brinker International, Inc. EAT, Darden Restaurants, Inc. DRI and El Pollo Loco Holdings, Inc. LOCO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Brinker International has an impressive long-term earnings growth rate of 11%.
Darden Restaurants reported better-than-expected earnings in three of the trailing four quarters, the average beat being 4%.
El Pollo Loco Holdings reported better-than-expected earnings in three of the trailing four quarters, the average beat being 5.5%.
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