Services

How Analysts View Yum Brands After Earnings

Chris Lange

Published: July 14, 2016 12:10 pm

Last Updated: January 13, 2020 5:43 am

Yum! Brands Inc. (NYSE: YUM) reported its most recent financial results after the markets closed on Wednesday. This is one of those companies that have very many moving parts. Until the China separation actually takes place, it would seem that this is what investors will focus on the most. Also the capital return is something to look forward to, as Yum CEO Greg Creed is calling it significant. As a result, analysts are now pouring into the stock.

24/7 Wall St. has included some highlights from the earnings report, as well as what analysts are saying after the fact.

In terms of the report, Yum took a bite out of earnings due to China; however, challenging industry conditions in the United States played into weaker sales. As far as 24/7 Wall St. feels, this report is really a question of guidance and how the company will finalize the China split.

Management has said that this has been a transformational year for Yum, and they further believe that the company remains on track to finalize the separation of China business with a targeted completion date in late October this year.

The separation of the company would allow for more flexibility on the Chinese front. Not to mention, there is a capital structure fully in place that is expected to return a significant amount of capital to shareholders both before and after the spin. Investors can look forward to updates on October 11.

As for the actual earnings, the company said that it had $0.75 in earnings per share (EPS) on $3.08 billion in revenue. The consensus estimates from Thomson Reuters called for $0.74 in EPS on $3.09 billion in revenue. The same period from last year had $0.69 in EPS on $3.1 billion in revenue.

Creed further commented on earnings:

Yum! Brands delivered second-quarter core operating profit growth of 7% and EPS growth, excluding Special Items, of 9%. Given our strong first-half results and current trends in China, I’m pleased to raise our full-year core operating profit growth forecast to at least 14% from 12% previously. I’m particularly pleased with the continued sales momentum at KFC China, which delivered better-than-expected same-store sales growth of 3%. This represents our fourth-consecutive quarter of positive same-store sales growth at KFC China despite the second quarter being our most difficult of the year from a historical sales overlap standpoint. Importantly, our China Division is off to a good start in the third quarter for both KFC and Pizza Hut Casual Dining, including a return to positive same-store sales at Pizza Hut Casual Dining in recent weeks.

A few analysts weighed in on Yum Brands after the earnings were reported:

• JPMorgan has an Overweight rating and raised its price target to $97 from $90.
• Morgan Stanley reiterated an In-Line rating with an $85 price target.
• Sanford Bernstein reiterated an Outperform rating with a $97 price target.
• Credit Agricole reiterated an Underperform rating with an $82 price target.
• BTIG Research reiterated a Neutral rating.
• Credit Suisse reiterated a Neutral rating.

Shares of Yum Brands were trading up almost 4% at $88.99 midday Thursday, with a consensus analyst price target of $87.15 and a 52-week trading range of $64.58 to $90.60.