High-Yield Restaurant Brands Is Ripe For Reversal
Restaurant Brands International NYSE: QSR is a uniquely organized restaurant corporation with both dine-in and fast-food establishments in the mix. This positioned it well for the pandemic because strength in one was able to offset weakness in the other and now both segments are back on track for growth. What is also unique about the company is that today, when so many corporations are facing mounting headwinds due to the global supply chain crunch, Restaurant Brands isn’t.
Well, not exactly anyway. The company says COVID-related hurdles remain but are impacting the company at a diminished rate compared to last year and that is padding the bottom line. While the Q3 results are mixed and have shares moving lower, the earnings, the outlook, and the dividend are all as bullish as they can be and have the company set up for reversal in the very near future.
“While the impact of COVID-19 on system-wide sales growth, system-wide sales, comparable sales and net restaurant growth was significant for the three and nine months ended September 30, 2020, in the 2021 periods these metrics were affected to a lesser extent, with variations among brands and regions,”
Restaurant Brands Returns To Growth
Segment results for Tim Horton’s are still trailing the pre-pandemic level but strength in Burger King and Popeye’s Louisiana Kitchen are more than making up the difference. The company reported $1.5 billion in consolidated revenue which is good for a gain of 11.9% over last year and 5% over 2019. The only bad news is that revenue missed the Marketbeat.com consensus by 130 basis points. The strength was led by Tim Horton’s with an 8.9% increase in comps over last year and a 4.10% increase in store count. Burger King also posted strong gains at up 7.9% organically but the store gain was smaller. Popeye’s, which grew 17% last year, fell -2.4% but that should be expected in the shadow of last year’s Chicken Wars.
Moving down the report, the company experienced a surprising widening of margin related to revenue leverage and positive financial trends within the business. The company was able to catch up on some bad debt as well and drive both the GAAP and adjusted earnings above consensus despite a miss on the top line. As for earnings, the GAAP $0.70 is up $0.23 from last year and beat the consensus by a penny while the adjusted $0.76 is up $0.08 from last year and beat by $0.02.
Restaurant Brands Is A High-Yielder And Growing
Restaurant Brands is a high-yielding stock at 3.4% compared to the S&P 500’s average of 1.25% and the payout is growing. The company has been increasing the payment for the last 6 years and is capable of raising it another 6, if at a lesser CAGR. The current CAGR is running near 30% but that does include a hefty increase several years ago. The payout ratio is a bit high, 75%, which also leads us to believe the pace of increases will slow, but the balance sheet is strong and getting stronger so there are no red flags for us to worry about.
The Technical Outlook: Restaurant Brands Plunges To Support
Shares of Restaurant Brands are down more than 4.0% following the Q3 release and may go lower but there is a caveat for investors. There are major divergences building in the indicators that suggest this move is overblown and overextended. Both the MACD and stochastic show divergences with price action testing support so we do expect to see support confirm at this level. If not, shares of Restaurant Brands could be in for a much deeper decline. Assuming earrings and the dividend are enough to keep the market interested at this level, we expect to see this stock continue bottoming and then possibly move higher later this year or in early 2022.
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