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Why Restaurant Brands International (QSR) Stock is a Compelling Investment Case

Pershing Square Capital Management recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 28.9% during the first half of 2020, outperforming its benchmark, the S&P 500 Index which returned -3.1% in the same period. You should check out Pershing Square’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Pershing Square highlighted a few stocks and Restaurant Brands International Inc. (NYSE:QSR) is one of them. Restaurant Brands International Inc. (NYSE:QSR) is a fast food restaurant company. Year-to-date, Restaurant Brands International Inc. (NYSE:QSR) stock lost 14.3% and on August 28th it had a closing price of $55.41. Here is what Pershing Square said:

“Restaurant Brands’ sales continued to improve through July due to the company’s quick response to Covid-19, the benefits of its off-premise and value-focused business model, and the easing of shelter-in-place orders. While Restaurant Brands’ share price has recovered more than 90% from its bottom in March, it still remains down 13% year to date, and 28% below its high last year prior to the onset of the Coronavirus.

In addition to bolstering safety procedures, QSR shifted its marketing to highlight its off-premise business including drive-thru, delivery, and digital ordering. The company is making significant digital investments by expanding its delivery footprint, driving mobile app adoption, and improving loyalty programs. To support franchisees, the company moved from fixed to variable rent at locations it controls, and temporarily deferred rents for certain franchisees. QSR also provided franchisees with additional liquidity from rebates and cash advance programs, and by pausing capital commitment requirements.

At Burger King U.S., same-store sales have improved to flat, primarily due to an increase in drive-thru sales. At Popeyes U.S., same-store sales quickly recovered, now growing in the high-twenties percent, even as this year’s sales begin to lap the launch last year of its highly successful chicken sandwich. While Tim Horton’s same-store sales have recovered to negative low-single-digits percent in the U.S., they remain in the negative mid-teens percent in Canada due to a slower pace of reopening, and lower drive-thru penetration. With the easing of shelter-in-place orders, more than 90% of QSR’s restaurants are now open.

As a result of the company’s quick actions and significant recovery in sales along with the support of various government programs, management estimates that the vast majority of franchisees at all three concepts are cash-flow positive in their home markets. The company expects its system-wide unit growth to be flat in 2020 as it works with franchisees to optimize its global footprint, and to return to its mid-single-digit historical growth rate in 2021.

We believe that each of Restaurant Brands’ concepts will emerge stronger from the crisis as its restaurant concepts are competitively advantaged in a socially distant and more budget-conscious consumption environment, enhanced by the company’s continued investment in drive-thru, delivery and digital.

We believe that Restaurant Brands’ current valuation does not reflect its improving business fundamentals, strengthening competitive position, ample liquidity, and long-term unit growth opportunity. We believe that as underlying sales trends at each of its brands, in particular, Tim Hortons, continue to improve, QSR’s share price will more accurately reflect our view of the company’s business fundamentals.”

Pixabay/Public Domain

In Q1 2020, the number of bullish hedge fund positions on Restaurant Brands International Inc. (NYSE:QSR) stock decreased by about 21% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Restaurant Brands International’s growth potential. Our calculations showed that Restaurant Brands International Inc. (NYSE:QSR) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.