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Here's Why You Should Retain YUM! Brands (YUM) Stock Now
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Yum! Brands, Inc. (YUM - Free Report) is likely to benefit from unit expansion, the strong Taco Bell performance and digital initiatives. Also, the emphasis on the ramped-up the rollout of Dragontail systems bodes well. However, commodity inflation and labor shortages are a concern.
Let us discuss the factors highlighting why investors should retain the stock for now.
Factors Driving Growth
YUM! Brands continues to focus on expansion efforts to drive growth. Considering its existing footprint of more than 50,000 restaurants worldwide, YUM! Brands believes it can nearly triple its current global presence over the long term. During the fourth quarter of 2022, the company opened 1,830 gross units. The company reported solid developments in the KFC and Pizza Hut International divisions, with gross unit openings of 997 and 571, respectively. The company reported solid developmental contributions from each brand in China, India, Thailand, Indonesia, Canada and Turkey. The company anticipates achieving a long-term unit growth of 5% in the upcoming periods.
Taco Bell continues to impress investors with robust same-store sales. The company’s comps climbed 5%, 8%, 6% and 11% during the first, the second, the third and the fourth quarters of 2022, respectively. Taco Bell recorded 253 gross new restaurant openings in fourth-quarter 2022 and 496 gross new openings in 24 countries during the year. During the fourth quarter, its operating margin expanded 3200 bps year over year to 32.1%. The company announced that it is focused on building momentum in markets like the U.K., Spain and India.
Yum! Brands implemented various digital features in mobile and online platforms across all brand segments to enhance the guest experience. The company has been working toward accelerating its delivery services and the results have been positive. The company focuses on integrating aggregator channels into its point-of-sale system to drive growth. In 2022, the company expanded its digital initiative, Tictuk, a conversational commerce and e-commerce platform. Following the chat ordering launch in KFC Mexico, the initiative drove incremental customers and digital sales. The company is optimistic in this regard and anticipates to roll it out in 1,000 new stores in 2023.
The company intends to ramp-up Dragontail Systems rollout to drive growth. The initiative allows the company to tap the powers of artificial intelligence to streamline the end-to-end food preparation process and improve its delivery capabilities. Backed by positive results in certain markets, the company intends to expand this cutting-edge platform across its franchisees in the United States. The company intends to onboard about 1000 Pizza Hut stores in the United States by first-quarter 2023. By 2023, the company anticipates including this system in about 7,000 stores internationally.
In the past six months, shares of the company have gained 21.1% compared with the Retail – Restaurants industry’s 19.8% growth.
Image Source: Zacks Investment Research
Concerns
The company has been continuously shouldering increased expenses, which have been detrimental to margins. In fourth-quarter 2022, its net costs and expenses amounted to $1,441 million from $1,388 million in the prior-year quarter. The transfer of business and exit from Russia incorporated certain additional costs. Also, spikes in commodity inflation added to the downside. We believe that costs associated with brand positioning in all key markets and ongoing investments in initiatives are likely to dent margins in the near term.
Moreover, labor shortages are a headwind. Although most dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
Yum! Brands currently carries a Zacks Rank #3 (Hold).
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 CHUY have increased 47.1% 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 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 9.7% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands currently sports a Zacks Rank #1. BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 23% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.4% and 5.5%, respectively, from the year-ago period’s reported levels.
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Here's Why You Should Retain YUM! Brands (YUM) Stock Now
Yum! Brands, Inc. (YUM - Free Report) is likely to benefit from unit expansion, the strong Taco Bell performance and digital initiatives. Also, the emphasis on the ramped-up the rollout of Dragontail systems bodes well. However, commodity inflation and labor shortages are a concern.
Let us discuss the factors highlighting why investors should retain the stock for now.
Factors Driving Growth
YUM! Brands continues to focus on expansion efforts to drive growth. Considering its existing footprint of more than 50,000 restaurants worldwide, YUM! Brands believes it can nearly triple its current global presence over the long term. During the fourth quarter of 2022, the company opened 1,830 gross units. The company reported solid developments in the KFC and Pizza Hut International divisions, with gross unit openings of 997 and 571, respectively. The company reported solid developmental contributions from each brand in China, India, Thailand, Indonesia, Canada and Turkey. The company anticipates achieving a long-term unit growth of 5% in the upcoming periods.
Taco Bell continues to impress investors with robust same-store sales. The company’s comps climbed 5%, 8%, 6% and 11% during the first, the second, the third and the fourth quarters of 2022, respectively. Taco Bell recorded 253 gross new restaurant openings in fourth-quarter 2022 and 496 gross new openings in 24 countries during the year. During the fourth quarter, its operating margin expanded 3200 bps year over year to 32.1%. The company announced that it is focused on building momentum in markets like the U.K., Spain and India.
Yum! Brands implemented various digital features in mobile and online platforms across all brand segments to enhance the guest experience. The company has been working toward accelerating its delivery services and the results have been positive. The company focuses on integrating aggregator channels into its point-of-sale system to drive growth. In 2022, the company expanded its digital initiative, Tictuk, a conversational commerce and e-commerce platform. Following the chat ordering launch in KFC Mexico, the initiative drove incremental customers and digital sales. The company is optimistic in this regard and anticipates to roll it out in 1,000 new stores in 2023.
The company intends to ramp-up Dragontail Systems rollout to drive growth. The initiative allows the company to tap the powers of artificial intelligence to streamline the end-to-end food preparation process and improve its delivery capabilities. Backed by positive results in certain markets, the company intends to expand this cutting-edge platform across its franchisees in the United States. The company intends to onboard about 1000 Pizza Hut stores in the United States by first-quarter 2023. By 2023, the company anticipates including this system in about 7,000 stores internationally.
In the past six months, shares of the company have gained 21.1% compared with the Retail – Restaurants industry’s 19.8% growth.
Image Source: Zacks Investment Research
Concerns
The company has been continuously shouldering increased expenses, which have been detrimental to margins. In fourth-quarter 2022, its net costs and expenses amounted to $1,441 million from $1,388 million in the prior-year quarter. The transfer of business and exit from Russia incorporated certain additional costs. Also, spikes in commodity inflation added to the downside. We believe that costs associated with brand positioning in all key markets and ongoing investments in initiatives are likely to dent margins in the near term.
Moreover, labor shortages are a headwind. Although most dining services are open, traffic is still low compared with pre-pandemic levels. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Zacks Rank & Key Picks
Yum! Brands currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Chuy's Holdings, Inc. (CHUY - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Bloomin' Brands, Inc. (BLMN - 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 CHUY have increased 47.1% 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 19%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados currently sports a Zacks Rank #1. ARCO has a long-term earnings growth of 7.8%. Shares of the company have declined 9.7% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2024 sales and EPS suggests growth of 8% and 11.4%, respectively, from the year-ago period’s levels.
Bloomin' Brands currently sports a Zacks Rank #1. BLMN has a long-term earnings growth rate of 12.3%. The stock has gained 23% in the past year.
The Zacks Consensus Estimate for Bloomin' Brands 2024 sales and EPS suggests growth of 2.4% and 5.5%, respectively, from the year-ago period’s reported levels.