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Yum China (YUMC) Stock on Fire: Outpaces Industry in a Year

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Yum China Holdings, Inc.’s (YUMC - Free Report) shares have surged 39.5% in the past year compared with the industry’s increase of 7.7%. The company has been benefiting from menu innovation, unit expansion, robust loyalty program and digitalization efforts. It is gradually shifting toward digital and content marketing to expand customer base.

The Zacks Rank #2 (Buy) company has an impressive long-term earnings growth rate of 19.5%. In the past 60 days, earnings estimates for 2023 have witnessed an upward revision of 7.8% to $1.79 per share. Revenues and earnings in 2023 are likely to witness growth of 21% and 70.5% year over year.

Let’s delve deeper.

Catalysts Driving Growth

Yum China focuses on relentless unit growth of restaurants to drive incremental sales. In fourth-quarter 2022, the company’s KFC and Pizza Hut brands had 419 and 97 new units opened, respectively. As of 2022, the total store count was 12,947, with 1,824 gross new stores opened.  In 2023, the company intends to open 1,100 to 1,300 new stores across its brands.

Meanwhile, the company emphasizes on expanding its supply-chain network to support store and portfolio growth, and enhance intelligent supply-chain operations. During the second quarter of 2022, the company completed the construction of its two greenfield logistics centers in Chengdu.

Another riveting growth potential of Yum China resides in its continual menu innovation to encourage top-line growth. KFC’s extraordinary performance is attributable to greater sales of menu offerings like crayfish burger, stuffed chicken wing and spicy chicken burger. Apart from such consumer-preferred food items, the company also offers signature menus for Chinese New Year and other holidays like the Golden Bucket.

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Yum China is also serving coffee across its restaurants and expanding the dessert category. The company will increase investment to expand presence in the Coffee segment, as it believes that the beverage has a strong demand in China.

The company is also focusing on digitalization to drive growth. During the fourth quarter, the company initiated the rollout of a smart order system (featuring AI) at KFC outlets. The initiative enhances customer experience by reducing wait time and providing real-time order update. It also recommends food preparation plan to minimize stock outs and wastage.

This apart, the company added a robotic service at one-third of the Pizza Hut restaurants. The company stated that it has set aside $1-$1.5 billion for investment in the digital and technology space over the next five years.

Other Key Picks

Some other top-ranked stocks in the Zacks Retail – Restaurants industry are Chuy's Holdings, Inc. (CHUY - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Brinker International, Inc. (EAT - Free Report) .

Chuy’s Holdings currently sports a Zacks Rank #1 (Strong Buy). CHUY has a trailing four-quarter earnings surprise of 19.1%, on average. Shares of the company have increased 26% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chuy’s Holdings’ 2023 sales and EPS suggests growth of 10.8% and 16.1%, respectively, from the year-ago period’s levels.

Arcos Dorados sports a Zacks Rank #1. ARCO has a long-term earnings growth rate of 11.6%. Shares of the company have increased 3.7% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests growth of 8.1% and 4.2%, respectively, from the year-ago period’s levels.

Brinker carries a Zacks Rank #2. EAT has a long-term earnings growth rate of 7.1%. The stock has gained 2.2% in the past year.

The Zacks Consensus Estimate for Brinker’s 2024 sales and EPS suggests growth of 3.9% and 36.5%, respectively, from the year-ago period’s levels.

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