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Yum! Brands: Why Investors Are Confident ahead of Q4 Earnings

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Jan. 30 2017, Published 12:53 p.m. ET

Yum! Brands

Yum! Brands (YUM) develops, operates, franchises, and licenses the Pizza Hut, KFC, and Taco Bell brands. The company is set to announce its 4Q16 earnings after the market closes on February 8, 2017. YUM will be reporting its earnings for the first time after spinning off its China operations on November 1, 2016.

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Stock performance

Since the spin-off of its China operations on November 1, 2016, the company’s stock has risen 8.6%. The spin-off is expected to make Yum! Brands more efficient, improve its capital structure, and help the company focus on its key strategies. In China, the company was losing its market share due to rise in nationalistic sentiments, changing customer sentiments, and food safety issues. So, the spin-off has mitigated the company’s risks associated with exposure to China. This change appears to have increased investors’ confidence, leading to a rise in Yum! Brands’ stock price.

During the same period, from November 1, 2016, to January 27, 2017, Yum! Brands’ peers Domino’s Pizza (DPZ) and Papa John’s (PZZA) have returned 2.7%, and 12.8%, respectively. Comparatively, the Consumer Discretionary Select Sector SPDR ETF (XLY) has returned 9.7% during the same period. XLY has invested 9.6% of its holdings in restaurant companies.

Series overview

With 4Q16 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 (earnings per share). To wrap up this series, we’ll look at the company’s valuation multiple and expected stock price over the next twelve months. Let’s start by looking at analysts’ expectations for Yum! Brands’ revenue in 4Q16.

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