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Burger King is reporting 4Q12 earnings on Friday.  We believe that this release will add credence to our thesis that the company was never “fixed” during its stint as a private company, as the bulls are claiming.

The performance of the U.S. & Canada store base (60% of total) continues to carry the most weight for the BKW investment thesis.  The outlook in this division, for Burger King, is not positive from a comparable sales growth perspective. 

We estimate that 4Q12 comparable sales growth was roughly 2% versus consensus of 3.4%.  January comparable sales among some North America franchisees are tracking as low as -4%, versus consensus for 1Q franchisee comps of +1.6%. 

1H13 is when the company will have to prove the sustainability of its sales growth and, if early indications are correct, some concern may be warranted on that front.  We believe the shares could trade below $13 over the intermediate-term, based on the cash flow multiple contracting by two points.  As the chart below illustrates, consensus is very bullish on 1Q13 comps.  The Street is assuming a 230 basis point sequential acceleration in 1Q13 two-year average trends.



BKW DOWNSIDE REMAINS - ev to ebitda bkw dpz sbux etc


Howard Penney

Managing Director

Rory Green

Senior Analyst