Burger King parent Restaurant Brands has a stock worth gobbling up, longtime restaurant analyst David Palmer at Evercore ISI said in a new note Monday.
Palmer sees several catalysts on the horizon for the company, mostly outside of Burger King US
Restaurant Brands said earlier this month that the multinational fast food holding company will invest $400 million to bring Burger King into the future over the next two years. The investment consists of $150 million in advertising and digital investment to “Fuel the Flame” and $250 million for a “Royal Reset” that includes restaurant technology, kitchen equipment, building improvements, renovations and relocations.
“It’s a really exciting time for us at the Burger King brand here in the U.S.,” Restaurant Brands CEO Jose Cill told Yahoo Finance Live (video above), adding, “We’ve had the last 9 to 12 months with new leadership . at Burger King in the US, working closely with our franchisees to build a plan to engage them, the wider system, our team members and our guests on our way and plan to rekindle the flame.”
Here are the details behind Palmer’s call on Restaurant Brands stock:
Palmer believes Restaurant Brands’ aggressive new investments in Burger King US will lead to higher sales and profits.
“We believe the $400 million investment will be enough to get the brand off the ground, and we’re projecting 4% same-store sales growth in the 3rd and 4th quarters of this year, as well as 2023 and 2024,” he wrote. “[Burger King U.S. President] Tom Curtis and his team quietly laid the groundwork to make the most of incremental investment. We estimate that the 800 renovations will add 1 percentage point to same-store sales growth from late 2023, as growth should exceed 12% historically.”
In addition, he said, “we believe that a 30% boost in marketing spend over the next two years and an average renewal of $40,000 across 3,000 restaurants can deliver an additional 1-2 percentage points of growth. More importantly, we believe that 1) the success of the 800 renovations, 2) management continuity and 3) improved operations and marketing messaging will help accelerate additional remodels in the remaining 50% of restaurants.We will emphasize that the consensus estimate for Q3 SSS growth of 5% she seems slightly aggressive.”
Better Whoppers will also help, Palmer said, which he and his fellow analysts believe “retain as much brand value” as the Burger King brand as a whole.
In addition, “Royal Crispy Chicken will replace Ch’King, which will be easier to prepare and have more flavors and help address operational challenges,” Palmer said. “We expect additional innovation across the menu, with premium architecture with everyday value still a key focus.”
Plus, Palmer added, don’t sleep on the recovery unfolding at Restaurant Brands-owned Canadian coffee chain Tim Horton’s.
“We are raising our already above-consensus Q3 Tim Horton’s Canadian same-store sales growth estimate to +12% from +10% (consensus +8.5%), translating to a 6% increase vs. 2019,” Palmer wrote. “On a three-year basis, Tim Horton’s Canadian same-store sales growth in Q1 was -5% and Q2 was +2%. We believe the exit rate in Q2 was closer to +5% as trends improved in Q2. We believe this momentum continued to build in Q3 due to 1) improvements in cold beverages and PM, 2) Canadian reopening and 3) improvements in marketing, digital and promotion.”
Evercore ISI is raising its estimates for same-store sales growth for the fourth quarter of 2022 and the first quarter of 2023 for Tim Horton’s to 10% each quarter.
“Last week, Tim held his franchisee conference in Las Vegas,” Palmer said. “We believe franchisee morale is the best it has been in years due to improved sales and solid plans across marketing, menu and digital capabilities.”
Yahoo Finance’s Brooke DiPalma contributed to this story.
Brian Sozzi is editor-in-chief and Anchor on Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and up LinkedIn.
Click here for the latest Yahoo Finance platform stock trends
Click here for the latest stock market news and in-depth analysis, including the events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for apple the Android
Follow Yahoo Finance at Twitter, Facebook, Instagram, Flipboard, LinkedInand YouTube