Burger King Earnings Preview

Burger King [[BKC]] is scheduled to report their fiscal fourth quarter 2009 results before the market opens on Tuesday, August 25. Based on our analysis, we at EarningsPreviews.com are expecting BKC to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $636.5 million and EPS of $.34. This would represent a 1% decline in revenues from last year’s $646.0 million in the same period. The current analyst consensus estimates calls for revenues of $633.6 million and EPS of $.33. On April 29, the company provided quarterly guidance of $.34 – $.37 EPS.

 

Wall Street has taken a very negative view towards Burger King’s fourth quarter earnings results. In fact, analyst consensus estimates are below the low end of the company’s guidance range. In addition, analysts at JP Morgan and Citigroup both downgraded the fast food chain in recent weeks. Now that the bar has been set so low, we believe there is significant potential for upside surprise.

 

While the challenging macroeconomic environment has clearly had some impact on Burger King, the company continues to focus on growth for the long term. Last quarter the company opened 53 new stores and has now increased their restaurant count by 355 over the last four quarters. Now if they could only get a decent ad agency and stop torturing the American public with their cheezy TV ads….

 

Stock Performance

Since the beginning of 2009, Burger King’s shares have declined 28% and have significantly underperformed the 4% gain in the Dow Jones industrial average. Last year, BKC’s stock fell only 16% and managed to outperform the 34% drop in the Dow Jones industrial average.

 

Valuation

Shares are now trading at less than 12x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. The markets appear to have already priced significant bad news into the stock and we feel that BKC shares now present a good buying opportunity to value investors.

 

Recommendation: Buy with a $19 price target.

 

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