Market Overview

4 Reasons Restaurant Brands Is An Attractive Pick Now

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Shares of Restaurant Brands International Inc. QSR, also known as RBI, returned 27.1% so far this year outperforming its industry's rally of 13.8%.

The price movement is backed by upward revision in earnings estimates for 2018. This reflects analysts' unwavering confidence in the stock. Over the past 60 days, current-year earnings rose 2.1%. The company also delivered positive earnings surprises in each of the trailing four quarters with an average beat of 9.83%.

Per our VGM Score, which identifies the most attractive value, growth and momentum characteristics, Restaurant Brands has a Momentum Score of B. This reflects an appropriate time to invest in the stock.

Driven by such positives, the prospects of this Zacks Rank #2 (Buy) stock raise analysts' optimism.

Why Pick Restaurant Brands?

Revenues and Estimated Growth: In order to drive revenues, RBI has undertaken various initiatives that include improved operations through comprehensive training, reimaging efforts and attractive menu options to enhance overall guest satisfaction. The company believes that product development will drive long-term success for its brands in 2017 and beyond. This is expected to boost traffic and expand customer base and will fortify RBI's leadership in food quality and taste. In the last quarter, the company reported revenues of $ 1.21 billion, up 12.4% from the prior-year quarter. Also, year-over-year sales growth for the current year is pegged at 10.8%.

Franchised Model Safeguards Earnings:Considering that almost 100% of the company's current system-wide restaurants are franchised, its expenses are considerably low. Since the company signs franchise agreements for all the restaurants, the franchisees bear the cost burden related to operations. This enables the company to achieve higher earnings.

Arguably, earnings growth is of utmost importance for determining a stock's potential as surging profit levels often indicate strong prospects (and stock price gains). For the current year, RBI's earnings per share are expected to grow 25.7%, higher than the industry's 6.7% rally.

Low Capital Requirement Helps in ROE Expansion:The company's fully-franchised model transfers burden to franchisees, which lowers its capital requirements. This facilitates Return on Equity (ROE) to increase. Additionally, the company witnesses free cash flow, allowing reinvestment for increasing brand recognition and shareholders' return.

Notably, RBI delivered a ROE of nearly 23.5% in the trailing 12 months, compared with the industry's gain of 6.4%. This shows that the company reinvests more efficiently compared with its peers.

Acquisition to Aid: In Feb 2017, RBI inked a definitive agreement to acquire Popeyes Louisiana Kitchen for $79.00 per share in cash, or $1.8 billion. The transaction was closed on Mar 27, 2017, upon completion of the customary closing conditions. Popeyes is one of the largest quick service restaurant chicken concepts in the world with over 2,800 restaurants in the United States and 25 other countries. Its global footprint will complement RBI's portfolio of around 21,000 restaurants worldwide.

Banking on the momentum in recent years, RBI plans to accelerate brand development in the United States and international markets. The acquisition of Popeyes has provided the company a distinct position, profitable segment along with strong customer loyalty and prospects. In fact, the acquisition has driven revenues in third-quarter 2017. The acquisition is likely to accelerate global unit's development and reduce costs, thereby proving accretive to earnings.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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