Restaurant Brands International (QSR.TO)

He loved this when everybody hated it. The stock had gone nowhere for years. Now people clearly like the stock, and the stock has gone up to the right. People are addicted to their phones. Even with people reducing cable spending and cutting the cord, the company has done a terrific job of increasing cable and reducing the churn. He doesn’t think this is as undervalued as it was. Feels all the telcos have been bid up because of the consistency of earnings and dividends. He still likes the telcos.

SBUX-T vs. QSR-N. He sold SBUX-T because the same store sales were weakening and that is happening for QSR-T as well. Both are not too cheap. There are headwinds in theses names.

A number of Canadian retailers could not make a go of it in the US. But this is like Target where a big US company thinks everything in Canada is the same as the US, but smaller. Tim Horton’s cannot be run just like Burger King.

He likes a nice ice cap and it is okay to eat there, but the stock not so much because of the high valuation. If they absolutely miss a quarter on same store sales there is a lot of room for the stock to fall. He would be interested in it after a missed quarter.

Affect of minimum wage in Alberta and Ontario on Tim Hortons? Tim Hortons is now a part of QSR that has locations all over the world, so what is happening in Canada is not going to move the needle for them.

Short? A great management team. She would definitely not Short this name. You never Short a name that has a great management team. She wouldn’t rush out and buy this right now. Their same-store sales comps on their other chains are not doing particularly well.

(A Top Pick June 17/16. Up 47%.) Saw a lot of growth at the time it was not reflected in the price. It was an iconic brand with a lot of catalysts. Sees it growing at 20%, and he models 11% EPS growth. Expensive at 31X, but still cheaper than its 4-year average. Still a Buy.

They have done very well compared to the overall TSX. They operate Tim Horton’s and Burger King. She thinks it is overextended, even though they are very good operators. You want to see how that international expansion takes hold. She would not jump in here.

Sell McDonald’s (MCD-N) and buy Restaurant Brands (QSR-T)? He feels that this is not a bad idea Restaurant Brands has more of a growth runway. McDonald’s is more of a mature business with penetration pretty much everywhere. The free cash flow profile is quite attractive.

(A Top Pick March 13/17. Up 10%.) Made a recent acquisition of Popeye’s Louisiana Chicken. It didn’t strike him as the best place to invest, but by the numbers, it was great.

They do a great job of making acquisitions and squeezing costs out of it. Popeye’s is their latest acquisition. Tim Horton’s have complained that they are pushing too much, but this is how they operate. She thinks they will go on to the next acquisition when they are done with this one. 1.3% dividend.

This has made a number of transformative deals, with Tim Hortons being the major one. Their strength is in cost cutting, and they’ve done a very good job managing that. There has been a little controversy lately of how far they go on costs. Not a cheap stock. Has a healthy amount of leverage. There are some well known catalysts including refinancing, a very expensive pref instrument, which will drive earnings growth and accelerate it heading into 2018. He likes this and would own more if it was cheaper.

Acquiring Popeye’s Chicken makes good financial sense, as both companies were undervalued. Popeye’s had a 37% Return on Capital. Dividend yield of 1.3%. (Analysts’ price target is $64.)

The company has done a great job. They will put deals together, cut the cost structure down, and then you’ve got this great company that expands by acquisition. This is good management that is much more aggressive on costs. A great story.

Sold his holdings when Burger King merged with Tim Hortons, as he was concerned about the debt levels. The valuation on all these fast food companies is sky-high. As a value investor, it is very hard for him to pay these prices where there is not a lot of growth. They get growth by cost cutting. If he ever saw a material pullback, he would definitely take a look again.