My apologies. Sometimes the bookkeeping in my portfolios gets a little complicated and I miss an entry. On February 20 I made Restaurant Brands International (QSR) the first pick in my Special Report on JubakAM.com “10 stocks for a market worried about an earnings recession.” At the time I said I’d add the stock to both my Jubak Picks and Dividend Portfolios on February 21. But to add a stock to those portfolios I have to write a post specifically doing that and I didn’t. So I’m fixing that omission today. The stock traded at $64.63 on February 20 and it closed at $65.90 today, Thursday April 4. It’s up, in other words about 1.97% from that original purchase price.
This is what I wrote in that Special Report. “When Wall Street thinks “earnings recession,” portfolio managers say “fast food.” But this time around, because the biggest danger to earnings growth comes from a slowdown in international economies and especially China and Europe stocks, they’re not saying “I’m loving it” with McDonald’s (MCD) but looking instead to Restaurant Brands International (QSR), the owner of the Burger King, Popeye’s Louisiana Kitchens, and Tim Horton. Two reasons for that. First, Restaurant Brands is way behind McDonald’s in penetrating overseas markets and has really just begun its expansion into China. (Last July the company signed a joint venture deal with private equity firm Cartesian Capital Group to open more than 1,500 locations in China over the next decade. The company’s financial results to date don’t reflect revenue from any openings resulting from that partnership. McDonald’s announced back in August 2017 a plan to increase its restaurant count in China to 4,500 from 2,500.) Second, the growth story is much, much clearer at Restaurant Brands because it is way, way behind in revamping its properties, especially the Tim Horton’s chain that accounts of 60% of the company’s revenue. In its fourth quarter earnings report, delivered on February 11, Restaurant Brands reported a 12% gain in revenue, as opposed to McDonald’s 3.3% drop. Comparable store sales at another competitor Dunkin (KNKN) were flat for its U.S.locations, while Tim Horton reported a 1.9% increase in fourth quarter comparable store sales. Restaurant Brands has completed just 400 Tim Horton’s renovations (as of the end of the fourth quarter), which amounts to just 10% of locations across Canada. Importantly (ya think?) it looks like the renovations are woking with comparable sales growth going from flat in the second quarter to .06% in the third quarter to the 1.9% reported for the fourth quarter. Momentum looks good at Burger King too where comparable sales grew 1.7% in the fourth quarter from 1.0% in the third quarter. For that chain Restaurant Brands is adding kiosks to take orders, outdoor digital menus, double drive-through lanes, and delivery, which is not available at roughly 2,000 North American units. Those efforts aren’t rocket science–my neighborhood McDonald’s restaurants have all those features–but that’s actually a plus. Investors aren’t looking at unproven innovations but at changes that close the gap with chains such as McDonald’s. The stock trades at 26.75 times trailing 12-month earnings per share (versus a 23.93 multiple for McDonald’s). Restaurant Brands raised its dividend to 50 cents from 45 cents at the end of January. The forward looking dividend yield is 3.13% (versus 2.64% for McDonald’s). The shares closed at $64.63 on February 20.”
As of February 21, I added these shares to both my Jubak’s Picks and Dividend Portfolios. My target price is $74 a share.
