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Why Yum! Brands Stock Fell after First-Quarter Earnings

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Stock performance

Although Yum! Brands (YUM) outperformed analysts’ revenue and EPS expectations, its stock price fell, as the SSSG of Taco Bell and Pizza Hut fell short of analysts’ expectations. For the quarter, Taco Bell reported SSSG of 4.0%, missing analysts’ estimate of 4.5%, while the SSSG of Pizza Hut was flat against analysts’ expectation of 0.5%. However, KFC outperformed analysts’ SSSG estimate of 2.7% with posted SSSG of 5.0%. Yum! Brands was trading ~2.0% lower in today’s early morning trading session.

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Year-to-date stock performance

YTD, Yum! Brands has returned 13.6%. In the fourth quarter of 2018, the company had outperformed analysts’ SSSG (same-store sales growth) estimates in all three brands. The strong fourth quarter SSSG and the strengthening of the broader equity market have driven the company’s stock price since the beginning of this year.

In comparison, peers Domino’s Pizza (DPZ) and Papa John’s (PZZA) have returned 9.1% and 28.5%, respectively. The broader comparative index, the Consumer Discretionary Select Sector SPDR ETF (XLY), which invests in restaurant and travel companies, has returned 21.3%.

Valuation multiple

As of April 30, Yum! Brands was trading at a forward PE multiple of 26.3x compared to 24.2x at the beginning of 2019. The surge in Yum! Brands stock price since the beginning of this year has led to an increase in its valuation multiple. On April 30, Yum! Brands’ peers Domino’s Pizza (DPZ) and Papa John’s were trading at a forward PE multiple of 27.2x and 41.4x, respectively.

Guidance

For 2019, Yum! Brands expects its adjusted EPS to be at $3.75, excluding the impact of one extra week in 2019, currency translation, and one-time items.

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