Restaurant Brands International shares fell by -1.4% during the day's morning session, and are now trading at a price of $70.36. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
an Increase in Expected Earnings Improves Its Value Outlook but Trading Above Its Fair Price:
Restaurant Brands International Inc. operates as a quick-service restaurant company in Canada, the United States, and internationally. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.15 and an average price to book (P/B) ratio of 3.11. In contrast, Restaurant Brands International has a trailing 12 month P/E ratio of 17.6 and a P/B ratio of 7.27.
Restaurant Brands International's PEG ratio is 1.26, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Firm Has a Highly Leveraged Balance Sheet:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $5,357 | $5,603 | $4,968 | $5,739 | $6,505 | $7,022 |
| Operating Margins | 36% | 36% | 28% | 33% | 28% | 28% |
| Net Margins | 21% | 20% | 15% | 22% | 23% | 24% |
| Net Income (M) | $1,144 | $1,111 | $750 | $1,253 | $1,482 | $1,718 |
| Net Interest Expense (M) | -$535 | -$532 | -$508 | -$505 | -$533 | -$582 |
| Depreciation & Amort. (M) | $180 | $185 | $189 | $201 | $190 | $191 |
| Diluted Shares (M) | 473 | 469 | 468 | 464 | 455 | 456 |
| Earnings Per Share | $2.42 | $2.37 | $1.6 | $2.69 | $3.25 | $3.76 |
| EPS Growth | n/a | -2.07% | -32.49% | 68.12% | 20.82% | 15.69% |
| Avg. Price | $48.96 | $58.37 | $49.6 | $58.56 | $52.49 | $70.36 |
| P/E Ratio | 19.9 | 24.32 | 30.81 | 21.61 | 16.0 | 18.42 |
| Free Cash Flow (M) | $1,079 | $1,414 | $804 | $1,620 | $1,390 | $1,203 |
| CAPEX (M) | $86 | $62 | $117 | $106 | $100 | $120 |
| EV / EBITDA | 16.57 | 16.76 | 23.66 | 20.52 | 19.56 | 20.65 |
| Total Debt (M) | $23,716 | $23,592 | $24,873 | $25,894 | $25,773 | $25,775 |
| Net Debt / EBITDA | 10.87 | 10.06 | 14.47 | 11.93 | 11.78 | 10.99 |
| Current Ratio | 1.07 | 1.29 | 1.41 | 0.97 | 0.97 | 1.01 |
Restaurant Brands International has decent operating margins with a stable trend, positive cash flows, and just enough current assets to cover current liabilities, as shown by its current ratio of 1.01. We also note that the company benefits from growing revenues and increasing reinvestment in the business and positive EPS growth. However, the firm has a highly leveraged balance sheet.
