Pershing Square Inc. on Restaurant Brands International Inc.
Thesis
Pershing Square believes Restaurant Brands International offers an attractive combination of durable operating growth, improving capital efficiency, and an undervalued earnings multiple. The company's restaurant brands have delivered five consecutive quarters of global same-store sales growth exceeding 3%, contrasting favorably with weaker restaurant industry peers. Burger King recorded third-quarter same-store sales growth of 8%, while its international operations grew 4% and Tim Hortons maintained positive sales growth despite pressure on Canadian consumers. Restaurant Brands is transitioning toward a more capital-light model by selling company-operated restaurants, which should improve capital efficiency. Pershing Square expects sustained high-single-digit operating profit growth, combined with appropriate leverage and share repurchases, to generate mid-teens total returns before any valuation expansion. At approximately 17 times earnings, the stock trades at a substantial discount to the fund's assessment of intrinsic value, creating potential for additional upside as earnings compound.
“We expect the stock price to increase as the company delivers strong earnings growth over time.”
Key risks
- Weakening restaurant industry sales and consumer spending could eventually affect Restaurant Brands' comparable-store sales growth.
- Continued pressure on Canadian consumers could limit growth at Tim Hortons.
- The Burger King improvement program and international franchise operations may fail to sustain their recent above-peer sales performance.
- The transition toward a capital-light business model and the anticipated benefits from leverage and share repurchases may not generate the expected shareholder returns.