With very strong tailwinds carrying Tim Hortons’ parent company Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR) more than 30% higher year to date, many long-term investors bullish on the quick service/fast food sector have reason to believe that Restaurant Brands will be able to outperform its peers, given its dominant position in a very profitable (and defensive) market.
With valuations nearing all-time highs in most major indices around the world, grabbing defensive diversification wherever possible is a noble and prudent goal today.
That said, potential headwinds surrounding the company’s Tim Hortons’ franchisee disagreement has garnered a lot of attention from investors of late, given the strong position taken by hedge fund manager Bill Ackman.
As one of the company’s long-time shareholders (and still one of Restaurant Brands’ largest shareholders), Ackman has been looked to as a source of information relating to how the company is expected to perform in the near to medium term. Ackman has recently liquidated a large percentage of its holdings in Restaurant Brands amid profitability concerns related to the aforementioned spat, indicating the long-term outlook for Tim Hortons’ parent company may not be as rosy as some analysts contend.
The dispute between Tim Hortons’ franchisees and the parent company QSR have stemmed from a feeling of being squeezed by its parent company for supplies, reducing operating margins and driving price increases in many stores forced to absorb said costs.
The long-term implications of this disagreement have been debated, however investors will need to watch how this dispute plays out in 2018 as profitability and margin expansion remain top priorities for Restaurant Brands moving forward given its relatively high valuation in relation to its peers.
Invest wisely, my friends.
