We believe that there are other stocks that are currently better valued than Restaurant Brands’ stock (NYSE: QSR). QSR’s current price-to-operating income ratio (P/EBIT) of 11.9x is higher than levels of 10.8x for Conagra Brands (NYSE: CAG), 7.7x for B&G Foods (NYSE: BGS), 6.7x for Coca-Cola Consolidated (NASDAQ: COKE) and 6.3x for Berry Plastics Group (NYSE: BERY). These stocks have a lower valuation (P/EBIT) compared to Restaurant Brands, while most of them have seen better revenue and operating income growth. This disconnect between valuation and performance could mean that you are better off buying CAG, BGS, COKE and BERY vs. QSR stock. More specifically, we arrive at our conclusion by looking at historical trends in revenues, operating income, and P/EBIT for these companies. Our dashboard – Better Bet Than QSR Stock: Pay Less To Get More From Stocks CAG, BGS, COKE, BERY– has more details – parts of which are summarized below.
1. Revenue Growth
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Restaurant Brands’ revenue grew at an average rate of 5.2% over the last three years, as compared to average revenue growth of 9.7% for Conagra Brands, 9.9% for B&G Foods, 13.2% for Coca-Cola Consolidated, and 16.2% for Berry Plastics Group. If we look at the revenue growth over the last twelve month period, Restaurant Brands’ revenue growth of 3.5% compares favorably with a 1.2% growth of Conagra Brands, but it is lower compared to average growth of 7.5% for B&G Foods, 9.5% for Coca-Cola Consolidated, and 12.5% for Berry Plastics Group.
2. Operating Income Growth
The three-year average operating income growth for Restaurant Brands’ stands at -3.5%, lower than 15.2% for Conagra Brands, 7.8% for B&G Foods, 46.5% for Coca-Cola Consolidated, and 19.7% for Berry Plastics Group. If we look at operating margin for the last twelve months Restaurant Brands’ operating margin of -4.1% is lower than 43.3% for Conagra Brands, -1.1% for B&G Foods, 97.1% for Coca-Cola Consolidated, and 8.2% for Berry Plastics Group.
The Net of It All
As we can see over the last three years, Conagra Brands, B&G Foods, Coca-Cola Consolidated, and Berry Plastics Group have higher revenue growth and operating income growth compared to Restaurant Brands. Despite better profit and revenue growth in the last three years, these companies have a comparatively lower P/EBIT. Even if we were to look at the last twelve months’ operating income growth a year ago, Conagra Brands, B&G Foods, Coca-Cola Consolidated, and Berry Plastics Group fare better compared to Restaurant Brands, and even then Restaurant Brands was trading at a higher multiple.
Restaurant Brands’ persistent underperformance in revenue and operating income growth compared to the other four companies reinforces our conclusion that the stock is expensive compared to them, and we think this gap in valuation will eventually narrow over time to favor the group of more attractively priced names. As such, we believe that Conagra Brands, B&G Foods, Coca-Cola Consolidated, and Berry Plastics Group are currently better buying opportunities compared to Restaurant Brands.
Also Restaurant Brands Peer Comparisons summarizes how the company fares against peers on metrics that matter.
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