Burger King Worldwide Is a Global Powerhouse, but Is It Worth the Price?

Burger King Worldwide (NYSE: BKW  ) has quietly become one of the fast-food industry's best performers during a time in which the industry's actual king has floundered. Since reemerging into the public markets (with help from super-investor Bill Ackman) in mid-2012, Burger King has done nothing but rise -- up more than 70% to date. The company isn't just finding success in its stock price, either, as its recent earnings show strong growth overseas and a net income that came in well ahead of analyst expectations. While currency fluctuations are keeping the lid on this fast climber, there's little doubt that Burger King is coming back as one of the most, if not the most,  formidable fast-food plays in the business.

Return of the King!
Coming in one penny ahead of analyst estimates, Burger King delivered another solid quarter of growth, with bottom-line earnings of $0.24 per share -- a 22% gain over the prior year's quarter, driven by higher sales and lower costs. On the surface, revenue looked wrecked at 30% lower than the year-ago number, but once adjusted for an unfavorable currency situation, revenues actually climbed 5.2% to $265.2 million.

Same-store sales nudged forward 0.2% in North America. The U.S. is a challenging market for Burger King and its peers, as consumers remain hesitant to eat out and aren't splurging for the premium menu items. Europe, Middle East, and Africa saw sales continue their rise -- up 3.3%. Latin America and the Caribbean performed decently -- up 1.7%. And, as is the norm for most multinational organizations these days, the Asia-Pacific region was the best performer, with more than 6% same-store sales growth. The best part is that the APAC region still represents a relatively small percentage of total sales.

What the numbers say
With the exception of an anemic North American segment, Burger King is growing impressively on both a unit and companywide level. Driving the sales gains is a major focus on store renovations. In 2013, the company invested tens of millions into refranchising hundreds of stores and renovating hundreds of others. Thirty percent of the North American stores were refreshed, as well, though the benefits appear to be delayed.

One of the big appeals of Burger King is partially what brought the aforementioned Bill Ackman to the company's doorstep in the first place -- the franchise business model. Franchises are a great way to do business for many reasons. They're capital-light, cash-flow-focused businesses that can help a company sail through periods such as the one we're in now -- economically timid. Though big sales generate bigger fees for the parent company, Burger King still earns its franchise fees quarter after quarter.

The biggest question surrounding the company is whether its growth can live up to its impressive valuation. Burger King trades at more than 23 times forward earnings estimates. That's a big premium over (recent) industry laggard McDonald's at 15 times earnings, but still less than the fast food industry's shining star -- Wendy's -- at more than 29 times earnings. On an EV/EBITDA level, Burger King is by far the most expensive, at more than 17 times. Wendy's is more attractive at 12.75 times, while McDonald's is again the cheapest at 10.53 times.

Burger King's international growth prospects and potential to become the leader in the fast-food world make it an attractive long-term play, but there appear to be options that offer similar potential at more compelling valuations. Investors interested in the space should look closely between Burger King and Wendy's.

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