How Did Yum! Brands React to BTIG’s Upgrade?

Stock performance

After BTIG upgraded Yum! Brands (YUM) from “neutral” to “buy,” the stock price rose to $82.25 from the previous closing price of $80.01. However, there was a weakness in the broader equity market due to concerns about the Trump Administration limiting Chinese investments in US technology companies. As a result, Yum! Brands’ stock price fell and closed at $78.87—a fall of 1.4% from the previous day’s closing price.

How Did Yum! Brands React to BTIG’s Upgrade?

YTD performance

In 2017, Yum! Brands returned 28.9%. Since the beginning of 2018, the company’s stock price has declined 3.4%. In the first quarter, Yum! Brands didn’t meet analysts’ SSSG (same-store sales growth) expectation. Investors were skeptical about Yum! Brands’ future earnings, which led to a fall in the company’s stock price. In the first quarter, the company posted an SSSG of 1.0%—compared to analysts’ expectation of 1.9%.

Domino’s Pizza (DPZ) and Papa John’s (PZZA) stock prices have returned 49.0% and -8.9%, respectively. The S&P 500 Index (SPY) and the Consumer Discretionary Select Sector SPDR ETF (XLY) have returned 1.0% and 9.7%, respectively.

Valuation multiple

As of June 27, Yum! Brands was trading at a forward PE multiple of 21.8x—compared to 25.7x at the beginning of 2018. Yum! Brands’ stock price declined due to weak first-quarter SSSG, which caused the company’s valuation multiple to fall. On the same day, Domino’s Pizza and Papa John’s were trading at forward PE multiples of 31.5x and 20.2x, respectively.