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JPMorgan started off coverage on Restaurant Brands International (NYSE:QSR) on Monday with an Overweight rating.
Analyst John Ivankoe said the combination of both turnaround and growth executives on the management team, matched with operational and ROI-focused financial executives is a strong evolution from the previous approach from the restaurant operator.
“A zero-based budgeting approach previously constrained support spend, which arguably contributed to an underinvestment in capex but also opex, especially against dynamic peers. We sense a sea change in this business, especially with the appointment of very widely respected former Dominos CEO Patrick Doyle in addition to numerous other executives.”
The focus by QSR on improving unit economics is expected to benefit both existing unit performance as well as add greater visibility to new store performance, which in turn is seen driving improved comparable sales and reinforcing confidence in the 4% to 5% unit growth. Ivankoe expects the growth to be driven by the international businesses of Burger King and Timothy Hortons, as well as Popeyes globally while domestic BK and TH unit counts achieve stability.
Ivankoe also pointed to a resurgence in same-store sales for Tim Hortons, which represent 18% of global system sales and 42% of operating income. “Perhaps years of dominance allowed by >70% in hot coffee share led to complacency, but this is no longer the case under brand leader Axel Schwan as the brand displays innovation and energy towards improving relevance we have not seen in years,” he noted.
JPMorgan’s price target of $82 on QSR is based on free cash flow projections, including $300M of annual capex needs. On a fairly similar systemwide growth rate, the estimated free cash flow yield of 4.25% was noted to be close to the expectation for McDonald’s (MCD) and Yum Brands (YUM).
Shares of QSR tracked 0.85% higher in Monday morning trading. The restaurant stock trades with a dividend yield of 3.19%.
