Food prices rose 7% in January 2022 due to supply chain disruptions and labor shortages. In 2021, the prices of items at some of the most popular fast-food restaurant chains increased about 8% year-over-year. However, the ease of online food ordering, efficient delivery services, and introduction of new vegan recipes should drive the growth of fast-food restaurants.

An improving job market should increase demand at quick-service restaurants and online platforms, owing to their convenient service offerings and expanding footprint. Moreover, the growing impact of food price inflation on the food at home should drive the sales of fast-food restaurants in the near term and help them overcome rising input costs. The global fast-food market is expected to grow at a 7.8% CAGR to $1.05 trillion by 2027.

Given this backdrop, it could be wise to invest in fundamentally-sound fast-food stocks Restaurant Brands International Inc. (QSR), Papa John's International, Inc. (PZZA), Biglari Holdings Inc. (BH), and BBQ Holdings, Inc. (BBQ).

Restaurant Brands International Inc. (QSR)

Headquartered in Toronto, Canada, QSR owns, operates, and franchises quick-service restaurants under the Tim Hortons (TH), Burger King (BK), and Popeyes (PLK) brands worldwide. The company is engaged in serving coffee and other beverage and food products.

On January 3, 2022, QSR’s Popeyes brand entered into an exclusive Master Franchise and Development Agreement with Silla Group subsidiary of the deep-sea fishing company Silla Co., Ltd., to develop and open hundreds of Popeyes restaurants across South Korea in the coming years. The companies plan to feature digital ordering screens, mobile ordering, and delivery to provide a seamless experience to guests and thus, expand its growth in the Asia Pacific region.

For its fiscal 2021 third quarter ended September 30, 2021, QSR’s total revenues increased 14.5% year-over-year to $1.50 billion. The company’s income from operations came in at $533 million, representing a 27.8% year-over-year improvement. Its adjusted net income came in at $353 million, up 10.3% from the prior-year period. QSR’s adjusted EPS increased 11.8% year-over-year to $0.76. The company had cash and cash equivalents of $1.77 billion as of September 30, 2021.

Analysts expect the stock’s EPS to improve 9.2% year-over-year to $3.03 for fiscal 2022, ending December 31, 2022. It surpassed the consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $6.21 billion for the same fiscal year represents a 9.5% rise from the prior-year period. The company’s EPS is expected to grow at a 17.9% rate per annum over the next five years. The stock has lost 2.8% over the past year to close Friday’s trading session at $57.46.

QSR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Stability and Quality. Click here to see the additional ratings for QSR’s Growth, Value, Sentiment, and Momentum. QSR is ranked #16 of 47 stocks in the B-rated Restaurants industry.

Papa John's International, Inc. (PZZA)

PZZA operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the Papa John's trademark. As of June 29, 2021, it operated 5,400 Papa John's restaurants.

On November 23, 2021, PZZA announced a deal with its new franchise partner Kitchen Express LTD, a subsidiary of AAH Limited, the majority shareholder of an oil and investment company Hass Petroleum Group, to expand into Sub-Saharan Africa by opening 60 restaurants in Kenya and Uganda in 2022. The partnership will help PZZA to benefit from Hass Petroleum’s significant retail footprint in Africa and continue its growth in international markets.

For its fiscal 2021 third quarter ended September 26, 2021, PZZA’s total revenues increased 8.4% year-over-year to $512.78 million. The company’s adjusted operating income came in at $40.73 million, representing a 65.9% rise from the prior-year period. PZZA’s adjusted net income came in at $30.63 million for the quarter, up 167.4% from the year-ago period. Its adjusted EPS increased 137.1% year-over-year to $0.83. As of September 26, 2021, the company had $105.81 million in cash and cash equivalents.

Analysts expect the company’s EPS to reach $3.67 for the fiscal year 2022, ending December 31, 2022, representing a 9.2% rise from the prior-year period. It surpassed Street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $2.06 billion for the same fiscal year indicates a 6.7% year-over-year improvement. The company’s EPS is expected to grow at a 15% rate per annum over the next five years. The stock has gained 6.2% over the past year and ended Friday’s trading session at $115.89.

PZZA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Growth and Quality. Click here to see the additional ratings for PZZA (Value, Stability, Momentum, and Sentiment). PZZA is ranked #4 in the same industry.

Biglari Holdings Inc. (BH)

BH owns, operates, and franchises restaurants under the Steak n Shake and Western Sizzlin names. The company also engages in underwriting commercial trucking insurance, selling physical damage and non-trucking liability insurance to the trucker, publishing, and licensing media products and services, and providing property and casualty insurance.

BH’s pre-tax operating earnings for its fiscal 2021 third quarter ended September 30, 2021, came in at $754 million compared to a loss of $854 million in the prior-year period. The company had $27.80 million in cash and cash equivalents as of September 30, 2021. Over the past year, the stock has lost 3.5% to end Friday’s trading session at $116.34.

BH’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system. The stock has an A grade for Value and a B grade for Quality and Sentiment.

In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for BH’s Momentum, Growth, and Stability here. BH is ranked #8 in the same industry.

BBQ Holdings, Inc. (BBQ)

BBQ develops, owns, operates, and franchises casual and fast dining restaurants under the Famous Dave's, Clark Crew BBQ, Granite City Food & Brewery, and Real Urban Barbecue names in the U.S., Canada, and the United Arab Emirates. The company offers smoked, barbequed, and grilled meats, entrée items, and side dishes and appetizers. It operates full-service and counter-service restaurants.

On October 8, 2021, BBQ closed the acquisition of Tahoe Joe's, a steakhouse restaurant chain. Known for its famous Lake Tahoe steaks, burgers, pork chops, and railroad camp shrimp, the acquisition of this 26-year-old legacy brand will complement BBQ’s roster of brands seamlessly. In addition, the introduction of ghost kitchens, virtual brands, dual concepts, organic new restaurant units, and conducting accretive and strategic M&A should enable BBQ to expand its reach globally.

For its fiscal 2021 third quarter ended October 3, 2021, BBQ’s total revenue increased 56% year-over-year to $55.38 million. The company’s income from operations came in at $1.69 million, representing a 9864.7% rise from the prior-year period. While its net income increased 1373.8% year-over-year to $4.83 million, its EPS rose 1050% to $0.46. As of October 3, 2021, the company had $28.98 million in cash and cash equivalents.

Analysts expect the company’s EPS to reach $1.53 for the fiscal year 2022, ending December 31, 2022, representing an 88.9% rise from the prior-year period. It surpassed Street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $710.01 million for the same fiscal year indicates a 250.4% year-over-year improvement. The company’s EPS is expected to grow at a 15% rate per annum over the next five years. The stock has gained 151.8% over the past year and ended Friday’s session at $15.76.

BBQ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. BBQ has an A grade for Sentiment, and a B grade for Growth, Value, and Momentum. Click here to see the additional ratings for BBQ (Stability and Quality). BBQ is ranked #9 in the same industry.

QSR shares were trading at $56.87 per share on Monday afternoon, down $0.59 (-1.03%). Year-to-date, QSR has declined -6.28%, versus a -7.99% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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