Why Investors Are Confident in YUM ahead of Its 3Q16 Results

Yum! Brands (YUM) develops, operates, franchises, and licenses the Pizza Hut, KFC, and Taco Bell brands. The company is set to announce its 3Q16 results after the market closes on October 5, 2016.

In 2Q16, YUM posted EPS (earnings per share) of $0.75 on revenue of $3.0 billion, compared to analysts’ consensus estimate of EPS of $0.74 on revenue of $3.1 billion. The company’s better-than-expected 2Q16 results and its announcement that the spinoff of its China operations is on track has led to a rise in its share price.

Since the announcement of YUM’s 2Q16 results on July 13, 2016, the company’s share price has risen 5.2%. By spinning off its China operations, the company aims to mitigate the risks associated with its exposure to the Chinese market.

As of September 28, 2016, YUM was trading at $90.2. Year-to-date, the stock has returned 24.9%. During the same period, YUM’s peers Papa John’s (PZZA) and Domino’s Pizza (DPZ) have returned 47% and 39.9%, respectively.

Since the beginning of 2016, the broader comparative index, the Consumer Discretionary Select Sector SPDR ETF (XLY), has returned 3.9%. XLY has invested more than 10% of its holdings in restaurant companies such as McDonald’s (MCD), Starbucks (SBUX), and Yum! Brands.

With 3Q16 results just around the corner, this pre-earnings series will focus on what to expect from YUM’s earnings release. It will cover analysts’ estimates on revenue, EBIT (earnings before interest and tax) margins, and EPS. To wrap up this series, we’ll look at the company’s valuation multiple and expected stock price over the next 12 months. Let’s start by looking at analysts’ expectations for Yum! Brands’ revenue in 3Q16.