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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) will likely benefit from solid comps growth, digital efforts and a Taco Bell performance. Also, the focus on expansion initiatives bodes well. However, a challenging macro environment is a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
Despite the challenging macro environment, the company impressed investors with robust same-store sales growth in third-quarter 2023. The company reported consolidated same-store sales growth of 6% year over year. The upside was primarily backed by a rise in dine-in traffic, digital initiatives and strategic third-party partnerships. During the quarter, same-store sales at Taco Bell, KFC and Pizza Hut rose 8%, 6% and 1% year over year, respectively. The company has been benefiting from a recovery in emerging markets. Given the emphasis on consumer value proposition, expanded digital access and franchise partners, the company anticipates the momentum to continue in the upcoming periods.
Yum! Brands implemented various digital features in mobile and online platforms across all brand segments to enhance the guest experience. The company is accelerating its delivery services and the results have been positive. In third-quarter 2023, it reported digital sales of more than $7 billion.
The company reported solid adoption of Dragontail Systems. The initiative paves a path to tap the capabilities of AI to streamline the end-to-end food preparation process and improve delivery capabilities. The company expanded its global adoption of the platform to 28 markets across KFC and Pizza Hut brands. As of the third quarter of 2023, the company onboarded about 1,400 US stores across the Pizza Hut brand under the Dragontail system. By 2023, the company anticipates to include this system in about 8,000 stores internationally.
The company also stated that its in-house developed AI module, Automated Inventory Management or AIM, is expected to be launched across the KFC US system by the 2023-year end. Currently, the AIM ordering technology is at more than 7,000 US restaurants, including 2,700 KFC US Restaurants added in the past quarter. The company reported positive feedback from its franchise partners, envisioning broad consumer appeal and a huge untapped market opportunity.
Yum! Brands is benefiting from increased contributions from Taco Bell. During the third quarter, Taco Bell's revenues were $629 million, up 11% from the year-ago quarter's levels. The upside was primarily backed by same-store sales growth (of 8%) and unit growth (5%). Also, the emphasis on commercial strategies — including building brand buzz, unparalleled value, mass occasions and digital initiatives — bodes well. During the quarter, it reported solid demand patterns for the return of fan favorites, comprising the $5 box. Taco Bell plans on increasing its chicken offerings through the launch of its new Cantina menu, which is expected to roll out in 2024.
YUM 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 third quarter of 2023, the company opened 1,130 gross new units, including 383 gross new units at Pizza Hut and 664 gross new units at KFC. It also reported positive feedback from its franchise partners, envisioning broad consumer appeal and a huge untapped market opportunity. The company is optimistic with respect to its development engine and anticipates it to be a driving factor in the upcoming periods.
Concerns
Image Source: Zacks Investment Research
In the past three months, the company’s shares have gained 2.7% compared with the Retail – Restaurants industry’s 4.3% growth. A challenging macro environment mainly caused the downside.
The company has been persistently shouldering increased expenses, which have been detrimental to margins. In third-quarter 2023, net costs and expenses amounted to $1,095 million compared with $1,094 million reported in the prior-year quarter. Costs associated with brand positioning in all key markets and ongoing investment initiatives are likely to dent margins in the near term. The company is cautious about the uncertain macro environment. Per our model, total costs and expenses in 2024 are expected to rise 3.6% year over year to $4.8 billion.
Zacks Rank & Key Picks
Yum! Brands currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Retail-Wholesale sector include:
Arcos Dorados Holdings Inc. (ARCO - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 28.3% on average. Shares of ARCO have surged 57.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 25.9% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5.1% and 26.2% growth, respectively, from the year-ago period’s levels.
Wingstop Inc. (WING - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 28.9%, on average. The stock has gained 71.5% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests rises of 15.6% and 17.5%, respectively, from the year-ago period’s levels.
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Here's Why You Should Retain YUM! Brands (YUM) Stock Now
Yum! Brands, Inc. (YUM - Free Report) will likely benefit from solid comps growth, digital efforts and a Taco Bell performance. Also, the focus on expansion initiatives bodes well. However, a challenging macro environment is a concern.
Let us discuss the factors that highlight why investors should retain the stock for now.
Factors Driving Growth
Despite the challenging macro environment, the company impressed investors with robust same-store sales growth in third-quarter 2023. The company reported consolidated same-store sales growth of 6% year over year. The upside was primarily backed by a rise in dine-in traffic, digital initiatives and strategic third-party partnerships. During the quarter, same-store sales at Taco Bell, KFC and Pizza Hut rose 8%, 6% and 1% year over year, respectively. The company has been benefiting from a recovery in emerging markets. Given the emphasis on consumer value proposition, expanded digital access and franchise partners, the company anticipates the momentum to continue in the upcoming periods.
Yum! Brands implemented various digital features in mobile and online platforms across all brand segments to enhance the guest experience. The company is accelerating its delivery services and the results have been positive. In third-quarter 2023, it reported digital sales of more than $7 billion.
The company reported solid adoption of Dragontail Systems. The initiative paves a path to tap the capabilities of AI to streamline the end-to-end food preparation process and improve delivery capabilities. The company expanded its global adoption of the platform to 28 markets across KFC and Pizza Hut brands. As of the third quarter of 2023, the company onboarded about 1,400 US stores across the Pizza Hut brand under the Dragontail system. By 2023, the company anticipates to include this system in about 8,000 stores internationally.
The company also stated that its in-house developed AI module, Automated Inventory Management or AIM, is expected to be launched across the KFC US system by the 2023-year end. Currently, the AIM ordering technology is at more than 7,000 US restaurants, including 2,700 KFC US Restaurants added in the past quarter. The company reported positive feedback from its franchise partners, envisioning broad consumer appeal and a huge untapped market opportunity.
Yum! Brands is benefiting from increased contributions from Taco Bell. During the third quarter, Taco Bell's revenues were $629 million, up 11% from the year-ago quarter's levels. The upside was primarily backed by same-store sales growth (of 8%) and unit growth (5%). Also, the emphasis on commercial strategies — including building brand buzz, unparalleled value, mass occasions and digital initiatives — bodes well. During the quarter, it reported solid demand patterns for the return of fan favorites, comprising the $5 box. Taco Bell plans on increasing its chicken offerings through the launch of its new Cantina menu, which is expected to roll out in 2024.
YUM 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 third quarter of 2023, the company opened 1,130 gross new units, including 383 gross new units at Pizza Hut and 664 gross new units at KFC. It also reported positive feedback from its franchise partners, envisioning broad consumer appeal and a huge untapped market opportunity. The company is optimistic with respect to its development engine and anticipates it to be a driving factor in the upcoming periods.
Concerns
Image Source: Zacks Investment Research
In the past three months, the company’s shares have gained 2.7% compared with the Retail – Restaurants industry’s 4.3% growth. A challenging macro environment mainly caused the downside.
The company has been persistently shouldering increased expenses, which have been detrimental to margins. In third-quarter 2023, net costs and expenses amounted to $1,095 million compared with $1,094 million reported in the prior-year quarter. Costs associated with brand positioning in all key markets and ongoing investment initiatives are likely to dent margins in the near term. The company is cautious about the uncertain macro environment. Per our model, total costs and expenses in 2024 are expected to rise 3.6% year over year to $4.8 billion.
Zacks Rank & Key Picks
Yum! Brands currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Retail-Wholesale sector include:
Arcos Dorados Holdings Inc. (ARCO - Free Report) sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 28.3% on average. Shares of ARCO have surged 57.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago period’s levels.
Brinker International, Inc. (EAT - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have increased 25.9% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5.1% and 26.2% growth, respectively, from the year-ago period’s levels.
Wingstop Inc. (WING - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 28.9%, on average. The stock has gained 71.5% in the past year.
The Zacks Consensus Estimate for Wingstop’s 2024 sales and EPS suggests rises of 15.6% and 17.5%, respectively, from the year-ago period’s levels.