Restaurant Brands' Fully Franchised Model Carries Minimal Earnings Risk To Cost Inflation: Analyst

Oppenheimer analyst Brian Bittner reiterated an Outperform rating on Restaurant Brands International Inc. QSR with a price target of $83.

The analyst is remarkably upbeat about higher near-term same-store sales, or SSS forecasts, following Q2's strong print.

Backed by solid momentum from Q2 results, Q3 SSS is revised +250bps (from +5.5% to +8.0%), and Q4 SSS is revised +160bps (to +4.4%). 

The estimates represent above-average revisions vs. peers and worry investors regarding the near-term expectation bar. 

Bittner believes SSS carries strong bottom-up driven momentum, particularly at TH-Canada and BK-Global. Management also anticipates >5% unit growth beginning in 2024.

Importantly, the analyst thinks the upward revisions are warranted and believes management is building credibility by executing "Reclaim the Flame."

Overall, the analyst thinks that Restaurant Brands' fully franchised model carries minimal earnings risk to cost inflation and drives global unit growth to >5% algorithm. 

Bittner also believes that Chairman Patrick Doyle boosts investment story credibility, is directly incentivized to improve shareholder value, and brings tools to accelerate growth.

On the negative side, the Canadian dollar fx headwind of ~2.5% relative to end of Q2 overly impacts QSR with ~52% of revenue from Canada (every 100bps=$0.02 to EPS annually).

In addition, Q3 interest rates to-date are up 43bps vs. Q2, which impacts ~20% of QSR's debt that is floating-rate (every 100bps= $0.04 to EPS annually).

Price Action: QSR shares are trading lower by 0.15% to $67.79 on the last check Monday.