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Yum! Brands (YUM) Rides on Robust Taco Bell Amid High Debt
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Yum! Brands, Inc. (YUM - Free Report) is benefiting from robust Taco Bell performance, menu innovation and strong digitalization. The company has also been focusing on unit expansion, which is expected to drive growth. Consequently, the company’s shares have gained 11.3%, compared with the industry’s growth of 10.8%.
Moreover, the consensus mark for 2021 earnings has witnessed upward estimate revisions, which reflects analysts’ optimism regarding the company’s growth potential. Over the past 30 days, the Zacks Consensus Estimate for its 2021 earnings has moved north by 0.3% to $3.89 per share. However, dismal performance at Pizza Hut and high debt remains a concern.
Key Catalysts
Taco Bell has impressed investors with robust fourth-quarter 2020 results. The company’s comps rose 1% in the reported quarter compared with the year-ago quarter’s growth of 2%. Its operating margin was up 10 bps year over year to 33.8%. It was primarily driven by lower general and administrative expenses, same-store sales increase, and higher company restaurant margins in the reported quarter. Taco Bell recorded 93 gross new restaurants openings in the quarter under review. Also, the company continues to reopen its temporarily-closed restaurants.
During the fourth quarter, the segment not only expanded to additional market places but also boosted its media presence with the launch of its loyalty program. This along with its product offerings boosted sales in the quarter, thereby resulting in a high-single-digit sales mix. Notably, the segment’s digital sales mix contributed 12% to total sales in the quarter under review. It also generated more than $1 billion in sales for 2020.
Moreover, Yum! Brands’ partnership with online food delivery platform Grubhub will enhance online sales and delivery from its restaurants. Additionally, the company implemented various digital features in mobile and online platforms across all brand segments to enhance guest experience. The company has also been working toward making its delivery services faster and the results have been positive so far. At the end of fourth-quarter 2020, the company had more than 35,000 restaurants offering delivery globally, up 16% year over year. In 2020, digital sales amounted to $17 billion, suggesting an increase of 45% over the prior year. During the quarter, Pizza Hut U.S. delivered 18% same-store sales growth in the off-premise channel. Moreover, in the Pizza Hut International segment, off-premise sales generated same-store sales growth of 9% in fourth-quarter 2020.
Concerns
Despite effective innovation across products, marketing and promotions, Pizza Hut sales trend has been choppy in the recent quarter. In first, second, third and fourth-quarter 2020, Pizza Hut same-store sales declined 11%, 9%, 3% and 1% respectively. Although YUM! Brands is focusing on transforming its Pizza Hut business to a modern delivery asset base in the United States, there have been 1745 pizza hut restaurant closures during 2020 due to COVID-related disruptions. The company believes that the choppy sales trend is likely to persist.
A strong balance sheet will help the company tide over the ongoing crisis. At the end of Dec 31, 2020, the company’s long-term debt stood at $10.2 billion, compared with $10.6 billion at Sep 30, 2020. However, the company ended fourth-quarter 2020 with cash and cash equivalent of $730 million, which may not be enough to manage the high debt level.
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Yum! Brands (YUM) Rides on Robust Taco Bell Amid High Debt
Yum! Brands, Inc. (YUM - Free Report) is benefiting from robust Taco Bell performance, menu innovation and strong digitalization. The company has also been focusing on unit expansion, which is expected to drive growth. Consequently, the company’s shares have gained 11.3%, compared with the industry’s growth of 10.8%.
Moreover, the consensus mark for 2021 earnings has witnessed upward estimate revisions, which reflects analysts’ optimism regarding the company’s growth potential. Over the past 30 days, the Zacks Consensus Estimate for its 2021 earnings has moved north by 0.3% to $3.89 per share. However, dismal performance at Pizza Hut and high debt remains a concern.
Key Catalysts
Taco Bell has impressed investors with robust fourth-quarter 2020 results. The company’s comps rose 1% in the reported quarter compared with the year-ago quarter’s growth of 2%. Its operating margin was up 10 bps year over year to 33.8%. It was primarily driven by lower general and administrative expenses, same-store sales increase, and higher company restaurant margins in the reported quarter. Taco Bell recorded 93 gross new restaurants openings in the quarter under review. Also, the company continues to reopen its temporarily-closed restaurants.
During the fourth quarter, the segment not only expanded to additional market places but also boosted its media presence with the launch of its loyalty program. This along with its product offerings boosted sales in the quarter, thereby resulting in a high-single-digit sales mix. Notably, the segment’s digital sales mix contributed 12% to total sales in the quarter under review. It also generated more than $1 billion in sales for 2020.
Moreover, Yum! Brands’ partnership with online food delivery platform Grubhub will enhance online sales and delivery from its restaurants. Additionally, the company implemented various digital features in mobile and online platforms across all brand segments to enhance guest experience. The company has also been working toward making its delivery services faster and the results have been positive so far. At the end of fourth-quarter 2020, the company had more than 35,000 restaurants offering delivery globally, up 16% year over year. In 2020, digital sales amounted to $17 billion, suggesting an increase of 45% over the prior year. During the quarter, Pizza Hut U.S. delivered 18% same-store sales growth in the off-premise channel. Moreover, in the Pizza Hut International segment, off-premise sales generated same-store sales growth of 9% in fourth-quarter 2020.
Concerns
Despite effective innovation across products, marketing and promotions, Pizza Hut sales trend has been choppy in the recent quarter. In first, second, third and fourth-quarter 2020, Pizza Hut same-store sales declined 11%, 9%, 3% and 1% respectively. Although YUM! Brands is focusing on transforming its Pizza Hut business to a modern delivery asset base in the United States, there have been 1745 pizza hut restaurant closures during 2020 due to COVID-related disruptions. The company believes that the choppy sales trend is likely to persist.
A strong balance sheet will help the company tide over the ongoing crisis. At the end of Dec 31, 2020, the company’s long-term debt stood at $10.2 billion, compared with $10.6 billion at Sep 30, 2020. However, the company ended fourth-quarter 2020 with cash and cash equivalent of $730 million, which may not be enough to manage the high debt level.
Zacks Ranks
Yum! Brands — shares space with McDonald's Corporation (MCD - Free Report) , Starbucks Corporation (SBUX - Free Report) and Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) in the Zacks Retail – Restaurants industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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