Is Restaurant Brands International (QSR) Undervalued Amid Strong Franchise Growth and Mixed Earnings Signals?

Restaurant Brands International (QSR), the parent company of Burger King, Tim Hortons, and Popeyes, has long been a focal point for investors seeking exposure to the fast-food sector. With a 2024 revenue of $8.4 billion and a 17.9% year-over-year increase in operating income, the company appears to be capitalizing on its franchise growth strategy. However, mixed earnings signals-such as a 29.4% decline in trailing twelve months (TTM) earnings per share (EPS) to $2.81 as of December 2025-have sparked debate about its valuation. This analysis employs discounted cash flow (DCF) and price-to-earnings (P/E) valuation methods to assess whether QSR is undervalued.

DCF Valuation: Free Cash Flow Growth and Discount Rate Assumptions

QSR's free cash flow (FCF) has shown resilience, with $1.336 billion reported in 2024, a 7.74% increase from $1.24 billion in 2023. Quarterly FCF also rose to $1.022 billion in September 2025, reflecting operational efficiency. To model QSR's intrinsic value, we project FCF growth using a conservative 7% annual rate, aligned with its recent performance. Assuming a 10% discount rate (accounting for QSR's net leverage ratio of 4.6x and sector risk premiums), the DCF model suggests a fair value significantly above the December 2025 stock price of $68.23. For instance, a 10-year FCF projection discounted at 10% yields a present value of approximately $85 per share, implying a 25% undervaluation.

However, this model assumes stable growth in a competitive market. Risks such as supply chain inflation-highlighted in QSR's 2024 10-K as a drag on FCF-could temper future cash flows. Investors must also consider the company's capital return strategy, which includes $1 billion in shareholder returns in 2024, potentially reducing reinvestment in growth initiatives.

P/E Valuation: A Mixed Picture of Earnings and Price

QSR's P/E ratio as of December 2025 stands at 24.3x, calculated using the TTM EPS of $2.81 and a stock price of $68.23. This compares to a sector average of 22x for global quick-service restaurant (QSR) peers, suggesting QSR is slightly overvalued on a historical basis. Yet, forward-looking metrics paint a different picture. A forecasted 2025 EPS of $3.68 would lower the forward P/E to 18.5x, aligning with the sector's growth-adjusted multiples.

The discrepancy between trailing and forward P/E ratios underscores QSR's earnings volatility. While the TTM EPS declined, the company's third-quarter 2025 results showed an EPS of $1.03, and a December 2025 forecast of $0.94 hints at stabilization. If QSR can reverse its EPS decline and meet the $3.68 consensus target, the stock could trade at a discount to its peers.

Balancing Franchise Growth and Earnings Uncertainty

QSR's franchise model has driven organic adjusted operating income growth of 9% in 2024, with international expansion and digital innovation (e.g., mobile ordering) as key drivers. These strengths justify optimism in the DCF model, which rewards long-term cash flow visibility. However, the TTM EPS decline and supply chain headwinds introduce near-term uncertainty, complicating P/E analysis.

Investors must also weigh QSR's dividend strategy. A 2025 target of $2.48 per share implies a 7% yield at the December 2025 price, making the stock attractive for income-focused investors. Yet, aggressive buybacks and dividends could limit reinvestment in high-growth markets, potentially slowing FCF growth.

Conclusion: A Case for Cautious Optimism

While QSR's DCF valuation suggests undervaluation, its P/E ratio remains elevated relative to historical averages. The company's strong franchise growth and capital return program offset earnings volatility, but investors should monitor supply chain costs and EPS recovery. For those with a long-term horizon, QSR's $68.23 price tag offers a compelling entry point, particularly if the $3.68 EPS forecast materializes. However, short-term risks-such as the December 2025 EPS shortfall-warrant caution. In a sector where margins are razor-thin and competition fierce, QSR's valuation hinges on its ability to balance growth with profitability.