Stock Analysis & Ideas

YUM! Brands: Food and Stock Aim to Bedazzle

Yum! Brands (YUM) management wants diners to love and trust their restaurants. That is their stated mission.

Like most diners, I am moderately impressed and moderately bullish on the stock. (See Analysts’ Top Stocks on TipRanks)

Other quick-service restaurants hold exponentially greater brand value. Other eateries are also rated higher in preferences of food quality and service. YUM’s KFC restaurants score third in a “most beloved fast-food chain” rating contest this year. Management has a lot of work ahead to accomplish its mission.

The Habit Burger Grill chain YUM purchased in March 2020 is the exception. Habit operates 316 units in the U. S., Cambodia, China, and the U.A.E. Habit does not appear on the list of the most known or popular dining brands.

However, in a survey by The American Customer Satisfaction Index ranking “factors such as cleanliness, accuracy, staff helpfulness and reliability of mobile apps,” Habit Burger Grill tops the list.

It’s All About the Money

News sentiment about YUM stock is skittish, similar to the sentiment about the restaurants. Half the news reports are bullish, half bearish.

A mere 62% are bullish about the entire restaurant sector. Sixteen analysts have YUM at a Moderate Buy. Eight recommend investors buy YUM. Eight others recommend holding shares already in your portfolio.

The average YUM price target is $138.42, implying an upside of 8.9%, with a high forecast of $145.

Q2 2021 revenue was up 33.7% year-over-year, and the diluted EPS of $1.29 was up 92.5% year-over-year. The quarterly dividend stands at $0.50 per share.

There is good news from hedge funds. They are showing renewed interest in YUM. Funds increased their holdings by 161,200 shares last quarter.

Keeping the Pedal to the Metal

There are two reasons for optimism going forward with Yum! Brands.

First, Yum! Brands operates internationally. KFC, Pizza Hut, Taco Bell, The Habit Burger Grill, and WingStreet have restaurant locations in over 150 countries. YUM’s KFC is the largest brand in India. Taco Bell is working to open 600 restaurants in India over the next decade.

Second, YUM bought Tictuk Tech in March 2021, and two other (Kvantum and Dragontail) food tech companies. Kvantum is an AI software company addressing consumer preferences and business analytics. The other two have software intended to make ordering, deliveries, and marketing more efficient.

The software has “the ability to offer more ways for consumers globally to access and order its KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill brands through some of the world’s most popular social media and conversational platforms.”

YUM is a growth company with a lot of support worthy of interest to retail investors. The restaurant business demands forward-thinking because competitors are at war with one another. Whether it is over menus, meal portions, freshness claims, scandals and recalls, or enticements like free coffee and breakfast promotions, the chains compete with one another and with locally owned family eateries.

The pandemic forced diners globally to eat at home. YUM will thrive as economies open and people rub shoulders again. We already had a taste of the company’s success last quarter when Yum! Brands beat market expectations for second-quarter results.

Disclosure: At the time of publication, Harold Goldmeier did not have a position in any of the securities mentioned in this article.

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