Expanding Global Footprint And Digital Growth Ignite Future Revenue Prospects

Key Takeaways

• International expansion and acquisitions could drive system-wide sales growth, expanding the company's footprint and boosting future revenue through enhanced franchise opportunities.
  
• Digital investments and operational improvements in restaurants could enhance profitability, driving higher net margins and earnings through increased consumer engagement and value offerings.
  
• Rising geopolitical tensions and stagnant sales growth pose challenges to Restaurant Brands International's expansion and revenue targets amidst increased debt and competitive pressures.

Catalysts

Operates as a quick-service restaurant company in Canada, the United States, and internationally.

• The acquisition of Carrols Restaurant Group and Popeyes China is expected to contribute to growth by expanding the company’s footprint and improving franchise opportunities, potentially boosting future revenue.
  
• Increased focus on consumer value and operational fundamentals across brands like Tim Hortons and Burger King could drive improved operating income by offering compelling value and service, likely leading to higher net margins.
  
• System-wide sales growth is expected to be supported by international expansion, especially in markets like Japan and the UK, which suggests a runway for revenue growth as more locations are developed.
  
• Ongoing improvements and remodels within Burger King’s U.S. restaurants aim to enhance profitability, potentially raising EPS as restaurant transformations lead to better sales performance.
  
• Investment in digital capabilities and enhancements is driving strong growth in digital sales at Burger King and Popeyes, suggesting a boost in earnings driven by increased digital engagement and sales convenience.

Restaurant Brands International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Restaurant Brands International's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.0% today to 19.5% in 3 years time.
• Analysts expect earnings to reach $1.9 billion (and earnings per share of $4.55) by about November 2027, up from $1.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.0x on those 2027 earnings, up from 17.3x today. This future PE is lower than the current PE for the US Hospitality industry at 24.4x.
• Analysts expect the number of shares outstanding to decline by 2.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

Restaurant Brands International Future Earnings Per Share Growth

Risks

• Rising geopolitical tensions in key markets like the Middle East and China could negatively impact international expansion plans and overall system-wide sales growth. This affects revenue and net restaurant growth targets.
  
• Stagnant comparable sales growth of 0.3% indicates a challenging consumer environment, particularly in North America, which could potentially depress future revenue and earnings.
  
• The softening restaurant growth, primarily driven by issues in China and macroeconomic challenges, might hinder the company's ability to meet its long-term growth targets and could impact revenue and expansion costs.
  
• Increased debt levels following acquisitions, such as Carrols Restaurant Group, have led to higher interest expenses, potentially affecting net margins and cash flow available for future investments or shareholder returns.
  
• Competitive pressure in the U.S. market, particularly for Burger King and Popeyes, due to other brands enhancing their value menu, could impact Burger King's ability to maintain market share and sustain revenue growth.

Valuation

• The analysts have a consensus price target of $82.08 for Restaurant Brands International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $103.0, and the most bearish reporting a price target of just $72.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $9.9 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 23.0x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $67.91, the analyst's price target of $82.08 is 17.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.