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What Do Yum! Brands’ Risk Factors Reveal?

Yum! Brands (YUM) is an American multinational quick-service restaurant chain. It operates a portfolio of more than 52,000 restaurants through brands such as KFC, Taco Bell, and Pizza Hut.

For Q4 2021, Yum! Brands reported an 8% year-over-year rise in revenue to $1.89 billion and modestly surpassed the consensus estimate of $1.88 billion. It posted adjusted EPS of $1.02, which declined from $1.15 in the same quarter the previous year and missed the consensus estimate of $1.09.

The company plans to distribute a quarterly dividend of $0.57 per share on March 11, which represents a 14% increase over the previous dividend. YUM stock currently offers a dividend yield of 1.64%, compared to the sector average of 0.45%.

With this in mind, we used TipRanks to take a look at risk factors for Yum! Brands.

Risk Factors 

According to the new TipRanks Risk Factors tool, Yum! Brands’ main risk categories are Legal and Regulatory, Ability to Sell, and Macro and Political, each with 6 out of the total 30 risks identified for the stock. Production and Finance and Corporate are the next two major risk categories with 5 and 4 risks, respectively.

In a Legal and Regulatory risk factor, Yum! Brands tells investors that it is regularly involved in legal proceedings. It mentions that such legal issues may arise from a breach of contract or intellectual property disputes. It explains that such lawsuits can cost a lot to resolve. 

Yum! Brands cautions that defending against such lawsuits and settling the issues may be expensive. Additionally, litigation could divert management’s attention from strategic priorities and other important operational requirements. Furthermore, the restaurant chain warns that litigation could damage its reputation and adversely affect its operating results.

In a Production risk factor, the company informs investors that the success of its business depends on its ability to retain qualified employees. But the competition for qualified workers in the restaurant industry is high. Therefore, Yum! Brands cautions that the loss of key personnel and general labor shortages could slow its growth and reduce profitability. Additionally, the company cautions that an increase in wages and other employee benefits expenses could adversely affect its operating results.

In a Finance and Corporate risk factor, Yum! Brands cautions that its investments may not deliver the anticipated benefits. It explains that it engages in mergers, acquisitions, partnerships, and other strategic transactions from time to time. The problem is that such deals are subject to many uncertainties that could not only prevent Yum! Brands from achieving the expected benefits, but also harm its reputation.

Yum! Brands stock has gained about 18% over the past 12 months.

Analysts’ Take

In January, Morgan Stanley analyst John Glass reiterated a Buy rating on Yum! Brands stock and raised the price target to $150 from $141. Glass’s new price target suggests 23.60% upside potential.

Consensus among analysts is a Moderate Buy based on 8 Buys and 7 Holds. The average Yum! Brands price target of $145 implies 19.48% upside potential to current levels.

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