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Yum! Brands vs Restaurant Brands: Which Fast-Food Stock Does The Street Favor?
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Yum! Brands vs Restaurant Brands: Which Fast-Food Stock Does The Street Favor?

Since the easing of lockdowns, restaurants and fast-food chains are experiencing improving sales trends after being crushed by the COVID-19 outbreak over the past few months. However, sales are still below pre-pandemic levels. As per the US Census Bureau’s advance estimates, sales at food services and drinking places increased 4.7% in August compared to July but were still down 15.4% Y/Y.

Since the pandemic, drive-thrus, curbside pick-up and home delivery options have come to the rescue of several food chains.

Amid this current crisis, we will compare the performance of Yum! Brands and Restaurant Brands and use the TipRanks’ Stock Comparison tool to see which stock presents a better investment opportunity.

Yum! Brands (YUM)

Yum! Brands is the parent company of popular chains KFC, Pizza Hut and Taco Bell and operates more than 50,000 restaurants in over 150 countries. The company expanded its portfolio with the acquisition of The Habit Burger Grill earlier this year.

COVID-19’s impact on Yum! Brands reflected in the second-quarter performance with revenue down 8.5% Y/Y to $1.2 billion and adjusted EPS falling 12% to $0.82. Same-store sales fell 15% with the highest decline of 21% experienced in the KFC division while Pizza Hut and Taco Bell were down 9% and 8%, respectively. Temporary store closures due to the pandemic peaked in early April with about 11,000 locations closed.

By July end, about 95% of the company’s stores were operating either in full or limited capacity but dining was still closed in 24,000 locations. Yum! Brands acted quickly to offer delivery options and curbside pick-up amid the virus outbreak. Over 34,000 of its restaurants around the world offered delivery marking a 13% Y/Y rise. Digital sales surged $1 billion Y/Y to $3.5 billion in 2Q.

Coming to store presence, Yum! Brands opened 328 restaurants and closed 446 in2Q. New store openings were led by China, Asia, the US, Russia and Thailand.

Prior to the pandemic, the Pizza Hut division was Yum! Brands’ biggest concern as the chain was losing ground to rivals like Domino’s and Papa John’s. Pizza Hut’s largest US franchisee NPC International filed for Chapter 11 bankruptcy in July and announced last month its decision to close 300 of its 1,227 Pizza Hut locations permanently. In its bankruptcy filing, NPC blamed Pizza Hut’s deteriorating brand recognition and decreased menu innovation for its plight.

Amid the current crisis, Pizza Hut seems to be benefiting from the demand for delivery, carryout and digital orders. In the 2Q conference call management highlighted that in early May, the US Pizza Hut business recorded its highest average sales week for delivery and carryout in the past 8 years and that the chain served about 20 million contactless digital orders since March. (See YUM stock analysis on TipRanks)

Meanwhile, Yum! Brands is rolling out Taco Bell Go Mobile locations, which will be smaller in size compared to the traditional stores, have the option of curbside pick-up and will have two drive-thru lanes, including a priority pick-up lane with service for customers who order via the Taco Bell app.

On Sept. 8, Stifel analyst Christopher O’Cull increased the price target for Yum! Brands to $105 from $95 and maintained a Buy rating. The analyst raised his EPS estimates for 2020 and 2021 on higher same-restaurant sales projections for KFC and Pizza Hut brands. The analyst’s improved projection for Pizza Hut is based on his belief that the pizza category is sustaining its relative outperformance and Pizza Hut’s relevance is improving from pre-COVID.

The Street’s Moderate Buy consensus for Yum! Brands is based on 5 Buys, 8 Holds and No Sell ratings. The stock has declined 11.3% so far this year and could rise 11.1% as reflected in the average analyst price target of $99.23.

Restaurant Brands International (QSR)

Restaurant Brands owns the widely known quick-service restaurant brands—Tim Hortons, Burger King, and Popeyes Louisiana Kitchen and operates over 27,000 restaurants in more than 100 countries.

Covid-19-related temporary closures led to a 25.1% drop in Restaurant Brands’ 2Q revenue to $1.05 billion and a 53.5% Y/Y fall in adjusted EPS to $0.33. However, Popeyes’ 24.8% comps growth amid the crisis stood out while Tim Hortons and Burger King (largest division) posted a comps decline of 29.3% and 13.4%, respectively.

Popeyes’ highly popular chicken sandwich, launched last year, continued to enjoy robust demand and the Popeyes chain also witnessed significant growth across every category of its menu in 2Q.

Drive-thrus, digital and delivery channels saw robust demand in the quarter. In the home markets alone, the company’s digital sales were up 120% Y/Y. And the delivery channel saw triple-digit comps growth across all 3 brands in the home markets.

By the end of 2Q, about 93% of the company’s global restaurants were open and the company stated that sales were back to about 90% of its prior-year system-wide level.

Over the long-term, Restaurant Brands continues to see an opportunity to operate 40,000 restaurants. In 2Q, the company grew its net restaurant count by 3.9% Y/Y to 27,059. The company opened its first Popeye restaurant in China in May. Also, it continues to enhance its drive-thru network, mobile apps and delivery channels as customers are still unsure about dining at restaurants due to rising COVID cases. (See QSR stock analysis on TipRanks)

Last month, Piper Sandler analyst Nicole Miller Regan raised the price target for Restaurant Brands to $65 from $62 and reiterated a Buy rating following a recent round of channel checks that suggest “positive trends” at Burger King, “robust, positive” trends at Popeyes, and “steady” trends at Tim Hortons.

The Street mirrors Regan’s optimism with a Strong Buy consensus based on 10 Buys, 3 Holds and no Sell ratings. The average analyst price target of $64.74 implies an upside potential of about 19% in the stock, which has plunged over 14% year-to-date.

Bottom line

Covid-19 continues to hurt restaurant operators and several chains might close many physical locations as drive-thrus and delivery gain popularity but dine-in traffic remains weak. The Street’s bullish stance and higher upside potential reflect the belief that Restaurant Brands’ quick-service restaurants are poised to recover faster, making the stock a better pick compared to Yum! Brands right now.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment

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