Restaurant Brands' Strategic Efforts To Aid Long-Term Growth

Shares of Restaurant Brands International Inc. (NYSE:QSR) are riding high on robust earnings surprise, sales momentum at Burger King and sales-boosting initiatives. Following the company’s first-quarter results on Apr 24, the stock has gained 14% compared with the industry’s 4.5% rise. Yet, competition and increased labor wages might dampen profits. Let’s delve deeper.

Factors Driving Growth

Internationally, Restaurant Brands believes that there is an immense opportunity to expand its brand presence in existing as well as new markets. Also, it continues to evaluate opportunities to speed up international development of all the three brands by establishing master franchisees with exclusive development rights as well as joint ventures with new and existing franchisees.

Meanwhile, with over 60 years of operating history, Burger King has developed a scalable and cost-efficient QSR hamburger restaurant model that provides guests with fast and delicious food. Popeyes too is one of the leading quick service restaurant chicken concepts in the world. In 2017, Restaurant Brands completed the acquisition of Popeyes, which has a strong foothold along with strong customer loyalty and riveting prospects for growth in the United States and internationally. We expect the buyout to result in accelerated global unit development and aid in cutting costs, thus proving accretive to earnings.

Moving ahead, the company intends to increase franchisee profitability by leveraging on its global scale. Also, Restaurant Brands believes that it has potential to become the most competent franchised QSR operator in the world.

This apart, the Zacks Rank #3 (Hold) company continues to focus on improving its level of service through comprehensive training, improved restaurant operations, reimaging efforts and attractive menu options to improve overall guest satisfaction and drive comps. Per Restaurant Brands, new product development is a key catalyst behind long-term success of its brands and will continue to be in focus in 2018 and beyond. This, in turn, is expected to boost traffic by expanding customer base, spreading out into new dayparts, and continuing to build brand leadership in food quality and taste.

Concerns

Although the company’s fully-franchised model has a lot of positives, it also has its share of drawbacks and risks. Under this business model, the company’s prospects depend on its ability to attract new franchisees for all its brands and their willingness to open restaurants in existing and new markets. Additionally, Restaurant Brands has limited influence over its franchisees. As a result, 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 60 days, the Zacks Consensus Estimate for second-quarter and fiscal 2018 earnings moved south 6% and 1.9% to 63 cents and $2.69 per share, respectively.

Key Picks

Some better-ranked stocks in the same space are Wingstop Inc. (NASDAQ:WING) , BJ's Restaurants Inc. (NASDAQ:BJRI) and Dine Brands Global, Inc. (NYSE:DIN) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Wingstop has an impressive long-term earnings growth rate of 19.5%.

BJ's Restaurants has an impressive long-term earnings growth rate of 15.3%.

Dine Brands Global has reported better-than-expected earnings in the trailing four quarters, with an average beat of 7.8%.

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