Yum Brands Delivers Solid Earnings

Yum Brands (Ticker Symbol: YUM) the fast food conglomerate, which owns Kentucky Fried Chicken, Pizza Hut, and Taco Bell, reported earnings last week.  The Louisville, Kentucky based company reported an earnings per share beat of .82 cents vs. Wall Street analysts’ expectations of .81 cents per share. Revenue was reported in line with Wall Streets analysts’ estimates at $1.25 billion.  Overall, same-store sales rose over 4%, beating the 2.66% increase analysts were expecting. Yum Brands was able to increase its profit due to higher operating margins for KFC, Taco Bell, and Pizza Hut. To help cut more costs, the fast food giant has been selling thousands of its company-owned stores to franchisees.  

Taco Bell had slightly weaker than expected same-store sales growth.  The Mexican fast-food chain has historically been a strong performer for Yum and the company has been pushing to move the franchise into more international markets. Taco Bell did open 12 new international franchises; however, international sales were slightly down for the quarter.  Pizza Hut sales were flat for the quarter. The franchise has been the laggard of the three, as it has been struggling to gain new customers due to competitors like Domino’s and Papa John’s increasing their market share.

Earlier this year, Yum Brands invested $200 million dollars in the online ordering company Grub Hub.  The company is going to use the investment to help grow the reach of its delivery network and generate more orders for its KFC and Taco Bell franchises (Pizza Hut already offers delivery). Grub Hub will be the company’s only national partner and will be dedicated to helping grow the KFC and Taco Bell delivery networks. Similarly, McDonald’s recently partnered with UberEats, Uber’s food delivery service, to be the sole deliverer of its fast food.   

Yum Brands stock started off 2018 on a weaker note, putting in its first oversold condition in its Relative Strength Index in two years, before finding support at its 200-day Moving Average.  The stock proceeded to trade in a $15 dollar range before breaking through a minor downtrend and sending the stock to new highs for the year. Yum Brand’s found price support multiple times in late 2018 and early 2019 at its 100-day Moving Average before going on a tear, rallying at one point over 15%, trading to an all-time high of $104.47 on April 30th, 2019.  Yum Brands is currently up over 10% for the year.

(Chart above courtesy of ​www.tipranks.com​)  

Based on a survey of 14 analysts offering 12-month price targets, the average price target for Yum Brands stock is $103.45. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $101.95.

KFC, which is Yum Brands top earner of its three major franchises, reported slightly weaker European numbers due to a shortage of chicken in the United Kingdom which hindered some sales there.  Overall the company seems healthy and is seeing rapid growth across its Asian markets, especially in China. Long-term investors in the company have been rewarded consistently with continual growth and expansion and there seems to be no signs of it slowing any time soon.   



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