Does Yum! Brands Stock Belong in Your Portfolio?

The popular fast-food giant Yum! Brands, Inc. (YUM) is known for its  popular brands KFC, Pizza Hut, Taco Bell, and others. It continues to grow its market share, and its shares have gained 25% over the past nine months.

After establishing new delivery channels and expanding drive-through facilities last year, YUM is now well-positioned to outperform its peers in an off-premises consumption environment.

With continued investments in digital platforms and technology to enhance customer experience, YUM is poised to witness a sustained growth in the near term we believe.

Here is why we think YUM should keep moving higher in the coming months:

Strong Digital Presence

Since the onset of the COVID-19 pandemic, a stay-at-home culture has significantly changed consumers’ eating habits. Instead of preparing food seven days a week, three times a day, many people are now availing themselves of online food services and curb-side pick-ups from restaurants.

YUM has increased its digital presence significantly and continues to deploy technology to enhance guest experiences and meet the growing demand. To strengthen its position amid the ongoing public health crisis, the company has also updated its mobile features across all brand segments.

YUM’s digital sales hit a record $17 billion in 2020, representing a 45% increase versus the prior year.

Growing International Footprint

With a uniquely diversified global portfolio of more than  50,000 restaurants, YUM  is on track to expand its global reach and consolidate its franchises in Latin America and the Caribbean. Last year, YUM added 1,512  new restaurants in 88 countries under its KFC division and 682 gross new restaurants in 58 countries under its  Pizza Hut division. Moreover, the company has opened new food joints in China, Russia and Thailand.

Impressive Financials

YUM’s revenue increased 2.9% year-over-year to $1.74 billion in the fourth quarter ended December 31, 2020. The company’s core operating profit grew 3% for its KFC division and 4% for its  Pizza Hut division. Pizza Hut U.S.’ off-premises channel generated 21% same-store sales growth over this period.

YUM’s total assets have increased at a CAGR of 3.6% over the past three years, while its EPS has grown at a CAGR of 0.9% over this period.

Favorable Revenue and EPS Growth Outlook

Analysts expect YUM’s EPS to rise 35.9% for the quarter ending March 31, 2021. The consensus revenue estimate of $1.44 billion for the quarter represents a 13.8% improvement year-over-year.

Upside Potential in the Stock

Analysts expect YUM to hit $110.09 in the near term, representing  a potential upside of 5.1%. Moreover, the stock has an average broker rating of 1.8, which indicates  favorable analyst sentiment.

POWR Ratings Show Favorable Odds

YUM has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. YUM has a Quality Grade of A. Among other favorable qualitative aspects, the company’s trailing-12-month gross profit margin of 48.33% compares well with the industry average of 33.6%.

However, YUM has a Momentum Grade of D, consistent with its 3.5% price decline over the past month. It also has a grade of C for Value, which is in sync with the stock’s forward price/sales of 5.61x, which is 323.4% higher than the industry average of 1.33x. In the 48-stock, C-rated Restaurants industry, YUM is currently ranked #12.

To see additional POWR Ratings for Stability, Sentiment, and Growth for YUM, Click here.

There are several other stocks in the Restaurants industry with an overall POWR Rating of A or B. Click here to see them.

Bottom Line

YUM is poised to soar given its intensified efforts to  grow its digital presence, resilient business model, and expanding global reach. As such, we think the company is positioned well to continue its rally.

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YUM shares were trading at $105.51 per share on Friday afternoon, up $2.52 (+2.45%). Year-to-date, YUM has declined -2.81%, versus a 3.87% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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