BY MARK SEBASTIAN 

September 28, 2023 

Hey Trader,

I do not know if you have eaten there lately. I have not, but I have to say I am tempted…Why?

I love the commercial. Who wouldn’t? It is really catchy…

At BK…have it your way…at BK….have it your way…

And almost all of you know how this jingle ends…the mark of a good campaign.

But a good campaign doesn’t always result in sales.

Take me for example…I LOVE the jingle, but I have not been to a Burger King in 5 years.

Restaurant Brands International is the owner of Burger King,  Tim Hortons (mostly famous in Canada),  and Popeyes.

I’ll admit,  I love that chicken…I like the coffee from Tim Hortons…and chicken fries…it’s been a while but those are good.

But with the consumer at question,  is this a company that should be bought or a company that should be sold?

Let’s break it down.

The Good

Let’s start with that ad campaign. It is magnificent. I come from a family that played the board game Commercial Crazies …and my brother did some stellar work for Old Spice brands (this was my brother’s work ).  I can spot a good commercial…

The Burger King commercials are GOOD.

I do think they could result in an uptick in sales for that brand.

I am less impressed by the Popeyes ones of late…I am not sure wings are the way to go.

And Tim Hortons,  the biggest of the brands…well…I am not Canadian…if you tell me how they are doing.

Looking at the numbers…a little easier to break down.

The company sports a PE of 20.22 which is actually lower than the PE for McDonald’s and for Wendy’s…don’t get me started on Shake Shack…

The company has revenue of 6.7 billion dollars and a market cap of about 1/10 of McDonalds at 21.14 billion.

The company has really nice cash flows producing 3.69 a year and huge revenue per share at 14.88 dollars or revenue per share.

Margins are high…if you just look at the numbers around cash and revenue the stock looks great.

Sales growth has shown a nice bump rising 8.3% in the last quarter.  Tim Hortons is seeing growth,  BK is seeing growth.

One could argue that Burger King is cheaper than McDonald’s and is the winner in a trade down on fast food.

But here is…

The Bad

The debt…

QSR has 13.1 billion in debt…that is a lot relative to the earnings of the company.

We also have the consumer…yes they are trading down potentially to BK…but where does it stop?

There is a real risk of the whole industry collapsing if the consumer disappears.

In Canada where Tim Hortons is NOT a trade-down,  the company has the most risk…Tim Hortons is about half of all sales for QSR…if customers trade out of Tim Hortons into somewhere else… QSR has real debt issues.

This is why the company has fallen to 66 bucks a share since July.

The Verdict

QSR is probably not going belly up…2 years ago the stock was 62.46 it is now 65.92.

It is below its 200 dma and the chart looks ugly….

I think they are going to have a really good quarter though….I would buy….right here.

Your only option,

Mark Sebastian

Questions about that? Leave a comment below!