Restaurant Brands International should be stronger after the virus has passed

<p>While most restaurants are now closed due to the new coronavirus, most fast food operations are still open. When I recently delivered medical equipment to a friend in southern Georgia, Burger King was there for me. But shares in Burger King’s parent company, Restaurant Brands (NYSE: QSR), have fallen out of bed anyway. In fact, the QSR stock would open on April 6 at $ 35 / share. On Valentine’s Day, it was $ 67.

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Before the virus, QSR was one of the stars of my personal portfolio. Now I’m out of money.

As a trader, I was stupid. Was I wrong as an investor?

Is QSR stock strong?

Traders look at their stocks daily, while investors should be involved for a long time.

I have owned shares in QSR since 2017. I paid approximately $ 54.60 each for 200 shares, which have since accumulated $ 684 in dividends. A check came just today. But that does not compensate for the paper loss on equity, currently $ 4,200.

Traders would be appalled by this performance. Investors may see this as a buying opportunity.

In a normal year, QSR, which owns Popeye and Tim Horton and Burger King, could earn about $ 2.50 per share. Last year, it had nearly $ 1.5 billion in operating cash flow. Spread that cash flow over about 300 million shares and you look at $ 5 per share. Which means that right now this company is selling for just 7 times the cash flow.

It will not hold in 2020. QSR is next due to report results on May 4th. Analysts expect 54 cents per share of earnings and $ 1.33 billion in sales. If the management saw something completely different, they might not have paid the dividend, which currently gives almost 6%.

Is it weak?

Management warns that these quarterly estimates are off. The company has lowered its $ 1 billion revolving credit line and says it now has $ 2.5 billion in cash. It has also issued a new $ 500 million banknote that matures at five years at an interest rate of 5.75%.

Restaurant Brands is a franchisee. The risks of running the business are borne by the franchisees who run the restaurants. They hurt. So the company sends $ 70 million of the money back to North American franchisees and offers to defer rent.

QSR operations around the world are affected by the virus. While 90% of those in China have reopened, sales are still lower than they were before the pandemic. Elsewhere, QSR stores are only withdrawals and deliveries. For the March quarter, the company estimates that Tim Horton’s sales will decrease by over 10%, slightly less on Burger King and up on Popeye, which is much less in volume.

Franchisees have started to take the employees’ temperature before each shift. But I still felt paranoid after my last trip, because people can shed the virus for several days before they develop symptoms. (The trip was a week ago. I feel good.)

The points

If Restaurant Brands stops its dividend for a quarter or two, it will save about $ 300 million. Even if the company has enough money to avoid it, such a measure would not surprise me. It is already priced in the stock.

Whether you would buy QSR shares today depends on how long you think the virus will slow down sales. As management has indicated, sales may be down for some time.

But they will not be down much and as the impact of the virus lifts, QSR is well armed to go after other restaurant chains. Jack in a Box (NASDAQ: JACK) is worth only $ 720 million now. Papa Johns (NASDAQ: PZZA), which has held up pretty well through the pandemic, is worth $ 1.7 billion. QSR is worth $ 10 billion.

In balance, I will download more QSR layers.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, today and tomorrow with Moore’s team, essays on technology available in the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he owned shares in QSR.