Restaurant Brands (QSR) has a 'compelling risk/reward' - KeyBanc

Restaurant Brands (NYSE: QSR) was upgraded to Overweight, with a $76 price target by KeyBanc on Thursday.

Analyst Eric Gonzalez explained that since the start of the pandemic, QSR stock has underperformed fast-food peers by 19%.

"This largely reflects poor SSS results, inflation, staffing difficulties, and declining franchisee cash flow," the analyst wrote in his research note. "However, with a team in place led by Exec. Chairman Patrick Doyle, better franchisee alignment, and a fresh strategy to improve SSS/four-wall economics, we believe RBI's growth prospects have improved significantly since 1H22."

KeyBanc believes there is better franchisee profitability for Restaurant Brands.

"We believe profitability is moving in the right direction. For BK U.S., the Company cited a 40% improvement in EBITDA in 4Q22, reflecting accelerating SSS growth, moderating inflation, and a reduction in discounts from 25% of orders to 13% (per Carrols)," Gonzalez adds. "And based on our industry conversations/Key First Look Data, we believe SSS trends were strong to start the year and that the current EBITDA run rate may imply a full recovery to $175K could happen well ahead of the year-end 2024 target."

KeyBanc lowered its 2023/2024 EPS for Restaurant Brands to reflect lower supply chain margins in the near term. But they see a compelling risk/reward for the stock based on the discount vs. peers.

By Sam Boughedda

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