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Takeaway: BKW has to deal with myriad factors including franchisees, higher commodity prices and competition from MCD, BKC and WEN.

Keith shorted Burger King (BKW) in our Real-Time Positions this week. The quantitative setup fell into place, with BKW trading near the top of its TRADE range and our bearish fundamental thesis remains intact. We covered the short on the 26th and booked a gain.

BKW: Dethroning The King - BKW levels

Our Bearish Fundamentals Thesis:

Burger King Worldwide is a stock we have been bearish on since the deal was announced. We remain negative on TRADE, TREND, and TAIL durations. The title of our first note (4/10/12) on BKW was "Too Big To Fix?". In that note we expressed skepticism that the myriad issues that had dogged the chain for a decade had been conclusively resolved - without necessary capital investment - by the new owners over the 18 months prior to its most recent IPO. 

A conference call we held following our initial note on Burger King was called "The Latent Risks of Heavily Franchised Business Models" and discussed deep issues affecting the Burger King franchisee base. We calculated that operators within Carrols franchisee base pay out roughly 50% of their store-level cash flow back to the franchisor. The takeaway is that there is very little cash flow available for the franchisee to invest in his/her own business.

Other issues include:

1. Probable continuation of higher beef prices over the next few years due to supply issues

2. "Obamacare" could also add to financial strain on system in coming years

3. McDonald's is aggressively protecting its share from WEN and BKC