QSR Forensic Analysis
Price Targets (12m)
Executive Summary
Analysis Date: 2025-12-09 | Ticker: QSR | Price: $71.69
Our thesis is a SHORT on Restaurant Brands International. The company's valuation implies a perpetual growth rate of ~6.7%, which appears unsustainable given slowing organic growth at key brands like Popeyes. The balance sheet is extremely fragile, with 67.6% of total assets comprised of goodwill and intangibles ($17.4B) and a substantial debt load of $13.5B, creating significant downside risk from potential impairments or operational missteps.
Recent Material Events (8-K Analysis)
- •2025-10-30: Filing of the Q3 2025 earnings report and 10-Q, which forms the basis of this analysis.
- •2025-11-10 to 2025-11-14: Several 8-K filings were made. While the specific content was not provided, these typically relate to investor presentations or standard corporate updates following an earnings release. No major adverse events were flagged.
The market has had over a month to digest the Q3 results. The lack of significant price movement suggests the current risks are underappreciated.
Insider Trading Activity
- •Multiple Form 4 filings were registered between November 14, 2025, and December 3, 2025.
- •⚠️ The provided data does not specify whether these were BUY or SELL transactions. The frequency of filings warrants closer inspection, as consistent selling by insiders would strongly reinforce our short thesis.
Current News & Market Context
- •The macroeconomic environment remains challenging for QSRs, with persistent food cost inflation and shifting consumer spending habits towards value offerings.
- •QSR's strategy hinges on the successful execution of the Burger King U.S. turnaround plan, "Reclaim the Flame," which involves significant capital investment into remodeling recently acquired franchisee locations (Carrols). This is a high-risk, high-reward strategy in a competitive market.
Business Model Analysis
Revenue Mix
- •Franchise-Dominant Model: QSR operates a capital-light model where the majority of revenue comes from high-margin royalties and franchise fees.
- •Segment Performance: Tim Hortons remains the cash cow, particularly its supply chain. Burger King's recovery is pivotal, while Popeyes shows signs of stagnation with negative comparable sales.
- •Strategic Shift: The recent acquisition of Carrols Restaurant Group (1,000+ BK restaurants) temporarily increases exposure to lower-margin company-owned restaurant sales, introducing significant operational and integration risk.
Financial Health
💰 Cash Flow is Strong, but Balance Sheet is Precarious.
Operating cash flow remains robust at $1.16B for the first nine months of 2025. However, this is overshadowed by the alarming balance sheet structure.
| Metric (as of 2025-09-30) | Value | Analyst Note |
|---|---|---|
| 💰 Cash & Equivalents | $1.21B | Decreased from $1.33B at YE 2024. |
| 🔴 Total Debt | $13.53B | Extremely high leverage, significant interest burden. |
| 🔴 Goodwill & Intangibles | $17.35B | 67.6% of Total Assets. High risk of impairment. |
| ⚠️ Shareholders' Equity | $5.17B | Thin equity cushion relative to goodwill. |
| ✅ YTD Operating Cash Flow | $1.16B | Strong conversion from earnings. |
- •Debt Service: The company paid $826M in dividends/distributions YTD, a significant portion of its $996M in Free Cash Flow, limiting its ability to aggressively de-lever.
Valuation Analysis
Reverse DCF
To justify its current Enterprise Value of $44.9B, QSR must grow its Free Cash Flow by approximately 6.7% annually for the next 10 years (assuming an 8.0% WACC and 2.5% terminal growth rate).
This implied growth rate seems highly optimistic given that comparable sales for its major brands are in the low-single-digits or negative.
Comparables
| Company | EV/EBITDA (NTM) | P/E (NTM) | Notes |
|---|---|---|---|
| QSR | ~16.5x | ~19.0x | Valuation doesn't seem to price in balance sheet risk. |
| McDonald's (MCD) | ~17.0x | ~22.0x | Premium valuation for a best-in-class operator. |
| Yum! Brands (YUM) | ~18.0x | ~23.0x | Higher growth profile justifies a premium. |
QSR trades at a discount to peers, but the discount is insufficient given the disproportionately higher financial risk.
Competitive Position
- •Iconic Brands: QSR holds a portfolio of well-known brands, but each faces intense competition.
- •Burger King: Perennially lagging McDonald's and Wendy's in the U.S. market. The turnaround is critical but uncertain.
- •Popeyes: The momentum from the 2019 chicken sandwich has faded, evidenced by negative comparable sales (-2.4% in Q3'25).
- •Tim Hortons: Dominant in Canada but faces saturation and competition from both QSR and specialty coffee players.
Management Quality
- •Management, influenced by its 3G Capital heritage, is highly focused on financial engineering and cost control. The strategy to acquire, fix, and re-franchise the Carrols portfolio is bold but introduces substantial execution risk not typically associated with its capital-light model.
Risk Factors
- •🔴 Financial Risk (High): A $13.5B debt load and $17.4B in goodwill create a fragile capital structure. A goodwill impairment could wipe out a substantial portion of shareholder equity.
- •⚠️ Operational Risk (Medium): Failure to execute the Burger King turnaround, continued weakness at Popeyes, or franchisee distress could severely impact earnings.
- •⚠️ Macroeconomic Risk (Medium): A downturn in consumer discretionary spending would pressure sales across all brands, making it harder to service the large debt pile.
Forensic Accounting Flags
- •🔴 Goodwill & Intangible Assets: Constitute 67.6% of total assets. This is an outlier even for acquisitive companies and represents the single largest risk to the equity.
- •🔴 High Leverage: Debt-to-Equity ratio of ~2.6x and Net Debt / EBITDA of over 5x signals significant financial distress potential.
- •⚠️ Share-Based Compensation: At $113M YTD, SBC represents 9.7% of operating cash flow. While not extreme, it's a consistent drain on shareholder value.
Short Thesis
- •Extreme Balance Sheet Risk: The combination of massive debt and intangible assets creates a negative convexity profile. Any negative surprise—an earnings miss, a failed turnaround, or a recession—could trigger a goodwill impairment and a rapid re-rating of the stock to the downside.
- •Unsustainable Valuation: The current stock price implies a 6.7% FCF growth rate that is inconsistent with slowing organic sales. The market is pricing in flawless execution of a risky strategy.
- •Faltering Growth Engines: Popeyes, once a growth star, is now posting negative comps. Burger King's turnaround is capital-intensive and far from guaranteed, leaving the company heavily reliant on the mature Tim Hortons brand.
- •Catalyst Rich Environment: Potential negative catalysts include a Q4/Annual impairment test write-down, delays in the Carrols re-franchising plan, or continued margin pressure from inflation.
Catalysts & Timeline
- •Goodwill Impairment Test: Often conducted in Q4, with results in the 10-K filing (~Feb/Mar 2026). This is the most potent near-term catalyst.
- •Quarterly Earnings Reports: Any miss on revenue or guidance on the BK turnaround could trigger a sell-off.
- •Interest Rate Changes: Any spike in rates would increase the cost of servicing their variable-rate debt, pressuring cash flows.
Price Targets
| Scenario | Price Target | Rationale |
|---|---|---|
| 🐂 Bull Case | $82.50 | Flawless BK turnaround, FCF grows to $1.5B, multiple expands to 25x FCF. Limited upside. |
| 🐻 Bear Case | $43.00 | Minor goodwill impairment and/or recession fears cause multiple compression to 15x FCF. Significant downside. |
Investment Recommendation
SHORT with a High Conviction (8/10). The risk/reward is heavily skewed to the downside. The market is overlooking the profound balance sheet risk in favor of a turnaround story with a high degree of difficulty.
One-Liner Thesis
A highly-levered, intangible-heavy balance sheet supports a valuation that ignores slowing organic growth and significant execution risk in its Burger King turnaround strategy.