3 Reasons To Like Restaurant Brands Buying Popeyes Louisiana Kitchen

Shares of Restaurant Brands International Inc QSR set a new 52-week high after the owner of the Burger King and Tim Hortons fast-food chains agreed to buy Popeyes Louisiana Kitchen Inc PLKI for $1.8 billion.

For each share of Popeyes, Restaurant Brands will pay $79 in cash, representing a 27-percent premium based on a pre-rumor assessment of Popeyes’ 30-day volume weighted average price.

Rating And 3 Reasons To Like The Deal

Analyst Will Slabaugh of Stephens maintains his Overweight rating and $58 target price on Restaurant Brands shares and gave three reasons why he likes the deal:

1. “PLKI's attractive positioning in the quick-service space (growing chicken market).”
2. “PLKI's limited international exposure with likely large potential.”
3. “QSR's demonstrated and unique ability to accretively integrate other quick service brands (Tim Hortons).”

Related Link: Use Any Pullbacks In Restaurant Stocks To Add Exposure: Baird

Slabaugh noted that Restaurant Brands is paying 18.6x '17 EBITDA and 17.3x '18 EBITDA for Popeyes, according to consensus estimates. On a P/E basis, the '17 and '18 multiples are 32.2x and 27.8.

Also, the deal would increase the leverage of Restaurant Brands to 7.1x net debt/EBITDA on a pro forma basis from 6.5x at quarter end.

Shares of both Restaurant Brands and Popeyes set new 52-week highs at $57.98 and $78.85, respectively. At last check, shares of Restaurant Brands climbed 7 percent to $57.60 and Popeyes surged 19.17 percent to $78.79.