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Yum China (YUMC) Stock Outruns Peers, Gains 42% in a Year

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Yum China Holdings, Inc. (YUMC - Free Report) has done exceedingly well in an intensely competitive restaurant industry to emerge as an attractive investment option. This is quite evident from its performance in a year. The stock has improved 42.3% compared with the industry’s 26.1% growth.

We believe this Zacks Rank #1 (Strong Buy) stock has potential to sustain the momentum. It has an impressive long-term earnings growth rate of 19.9%. YUMC’s 2023 earnings and sales are likely to witness a rise of 89.5% and 19.7% year over year, respectively.

Growth Drivers

The company is benefiting from unit growth. In first-quarter 2023, Yum China opened 233 net new stores. In 2023, it intends to open 1,100-1,300 new stores across its brands. Meanwhile, it emphasizes on expanding its supply-chain network to support store and portfolio growth, and enhance intelligent supply-chain operations.

Focus on digitalization is another key factor driving growth. YUMC holds a leadership position in the Chinese restaurant space for its delivery, mobile order and pay, and loyalty membership programs. It is increasingly shifting toward digital and content marketing to expand its customer base.

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Yum China continued to emphasize in-store digitalization using AI, automation and IoT. To this end, it unveiled a new system in KFC that tracks real-time store-level inventory, and evaluates the quality of food products based on color and shape. Also, this system dispatches coupons for digital orders to reduce food waste.

Another riveting growth potential resides in its regular investments to improve customer experience and operating efficiency. The company’s continual menu innovation to drive top-line growth is an added positive. KFC’s extraordinary performance is attributable to greater sales of menu offerings like crayfish burger, stuffed chicken wing and spicy chicken burger.

Other Key Picks

Some other top-ranked stocks in the Zacks Retail-Wholesale sector are Chipotle Mexican Grill, Inc. (CMG - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Chuy's Holdings, Inc. (CHUY - Free Report) . CMG currently flaunts a Zacks Rank #1 whereas ARCO and CHUY carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chipotle has a long-term earnings growth rate of 31.8%. The stock has increased 61.7% in the past year.

The Zacks Consensus Estimate for CMG’s 2024 sales and EPS suggests growth of 12.4% and 19.7%, respectively, from the year-ago period’s levels.

Arcos Dorados has a long-term earnings growth rate of 9.5%. The stock has gained 20.9% in the past year.

The Zacks Consensus Estimate for ARCO’s 2023 sales implies improvement of 16.6% from the year-ago period’s levels.

Chuy’s Holdings has a trailing four-quarter earnings surprise of 23.4%, on average. The stock has surged 87.6% in the past year.

The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS indicates increases of 10.1% and 23.4%, respectively, from the year-ago period’s levels.

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