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YUM! Brands (YUM) Tops Industry in Past 3 Months: Here's Why

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Yum! Brands, Inc. (YUM - Free Report) is poised to benefit from digital initiatives, unit expansion and refranchising efforts. Also, focus on master franchise agreements bodes well.  

In the past three months, shares of YUM! Brands have gained 15.4% compared with the industry’s 6.7% growth. Moreover, an upward revision in earnings estimates for fiscal 2021 reflects analysts’ optimism regarding the company’s growth potential. In the past 30 days, the Zacks Consensus Estimate for its fiscal 2021 earnings has moved up 5.1% to $4.12 per share.

Factors Driving Growth

Yum! Brands implemented several sales-building initiatives, which have contributed to the company’s performance in the past few weeks. To this end, the company has increased focus on various digital initiatives and refranchising efforts. Notably, the company continues to deploy technology to enhance guest experience. In this regard, the company has implemented various digital features in mobile and online platforms across all brand segments. It is also continuing the transformation process toward a single point-of-sale system in the United States. Going forward, this advanced point-of-sale system is likely to boost member experience through optimization features, accuracy, speed and reliability.

Meanwhile, YUM! Brands aims to revamp its financial profile and improve the efficiency of its organization and cost structure globally. It believes that a “slimmer Yum Brands” will lead to efficiency gains. Nonetheless, the company increased focus on leveraging its scale and reinforcing the growth model, by accelerating investments in digital technology to enhance customer experience and unit economics. During first-quarter 2021, the company opened 660 restaurants and closed 225, resulting in 435 net new units. During the quarter, KFC delivered 4% unit growth and witnessed robust growth in China, India, Russia and Thailand.

Moreover, master franchise agreements in Brazil (Taco Bell), Spain (Taco Bell) and Russia (Pizza Hut), international growth alliance with Telepizza along with consolidate franchisees in Latin America and the Caribbean are likely to drive growth in the near future.

Also, the company adopted a de-risking strategy by reducing its ownership of restaurants through refranchising. We note that refranchising a large portion of the system reduces the company’s capital requirements as well as promotes earnings per share growth and ROE expansion.

Zacks Rank & Other Key Picks

Yum! Brands currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the same space include Chuy's Holdings, Inc. (CHUY - Free Report) and Dine Brands Global, Inc. (DIN - Free Report) and Texas Roadhouse, Inc. (TXRH - Free Report) , each sporting a Zacks Rank #1.

Chuy's Holdings has a trailing four-quarter earnings surprise of 127.6%, on average.

Dine Brands 2021 earnings are expected to surge 268.7%.

Texas Roadhouse has a three-five year earnings per share growth rate of 10%.

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