Yum Results Look Appetizing for Investors Despite Market Reaction; Taco Bell Growth Looks Hot

Wide-moat Yum Brands posted solid fourth-quarter results, with $2.02 billion in sales and $1.31 in adjusted EPS aligning closely with our $2.03 billion and $1.33 respective forecasts. If we had one gripe with performance, it would be softer restaurant margins in the Taco Bell segment (22.9%, against our 24.2% estimate), but those are inclusive of a one-time 50-basis-point drag for quarterly worker bonuses and are consistent with quarterly industry results to date. Elsewhere, there was plenty to like, with nearly 4,600 gross unit openings representing an industry record and underlying strength in the KFC and Taco Bell business units looking increasingly durable. We're finally getting on board with the Taco Bell international growth narrative, and on the back of higher medium-term unit growth estimates (to 4.4% and 390 units per year, from 4.0% and 330 prior), we expect to raise our $127 fair value estimate by a mid-single-digit percentage. We're also raising our Uncertainty Rating to Medium from Low, consistent with our quantitative methodology.