Welcome to ‘Stock Teasers’, where we aim to provide investment research on a wide range of topics. In this edition, Cross-Border Stocks, we spotlight one Canadian stock and one US stock, regardless of sector or size. Let’s dive in!

Canadian Stock: Restaurant Brands International (QSR)

Restaurant Brands International (QSR) is a quick-service restaurant company in North America. The company operates as a franchisor under four main brands including Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs.

In terms of its financials, it pays a healthy dividend yield of 3.1%, along with a 1.8% share buyback yield. It has demonstrated a solid organic growth profile over the years with limited capital investment required. Going forward, management expects to continue to grow its topline by around 8% on average through store expansion and same-store sales growth. It trades at a reasonable valuation of 20.1X forward earnings, a slight discount to other restaurant chains in the industry.

We believe that QSR’s management can continue to execute its growth strategy through a combination of acquisitions and organic growth. QSR has a shareholder-friendly policies with a generous capital returns program that is partially supported by debt issuance. We think the company is an above-average operator in the industry that trades at a discount valuation.

US Stock: Coca-Cola Consolidated (COKE)

Coca-Cola Consolidated (COKE) operates as one of the largest bottlers of the Coca-Cola Company (KO), COKE is the manufacturer and distributor of beverages, while KO provides the flavors and syrups. Unlike KO’s popularity as a high-quality dividend grower, COKE is quite under the radar with most investors. That being said, the company has a track record of consistently growing revenue and earnings and has compounded shareholder wealth at attractive rates. COKE has compounded shareholder wealth at around 30% on average in the last ten years, while it is still a $9.1 billion market cap company.

In its recent earnings results, COKE announced the intention to repurchase up to $3.1 billion of its common stock. Given the company’s market cap of around $9.1 billion. In effect, the company will retire around one-third of the total share outstanding in a short period of time. This capital return program was announced shortly after the company announced a special dividend last year. The amount of capital returns (buyback and dividend) has been quite limited in previous years as the company focused on deleveraging and growth through acquisitions and capital investment. However, the capital allocation policy has changed meaningfully in recent years, this could be a catalyst for further outperformance in the share price going forward.

Looking at its financials, we see a slight contraction in its valuation (forward EV/EBITDA multiple) over the past 10 years while the current share price is near an all-time high, and consistency in fundamentals growth. In fact, it has not missed an earnings estimate in the past 10 years. There is some cyclicality to its earnings due to the investment cycle, but it has seen an expansion in earnings, and margins consistently over the years.

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Employees, directors, officers, related companies, the i2i Fund and/or partners of 5i Research do have a financial or other interest in COKE, KO at the time of publishing.