Yum Earnings: Digital Progress and Value Positioning Drive Resilient Results; Shares Fairly Priced

While wide-moat Yum Brands missed our $1.75 billion sales and $1.26 adjusted diluted EPS forecasts (posting $1.65 billion in sales and $1.06, respectively), we came away from the quarter cautiously optimistic and continue to view forward prospects as salient. To this effect, the firm maintained its full-year guidance for 5% or better net unit growth, high-single-digit growth in operating profits, and $1.15 billion in general and administrative costs, suggesting to us that near-term pressures were more driven by timing (and an unanticipated U.K. ransomware attack) than anything structural. In fact, we see modest upside to the long-term 7%-8% operating profit growth algorithm in 2023, driven by a strong reopening in the firm's large Chinese market. As a result, we're modestly raising our full-year operating profit growth estimate to 9% from 8%, though we've elected to modestly lower our 2024 targets for growth in sales (to 4%, from 8%) and operating income (to 5%, from 9%) due to our cautious view on near-term industry prospects. On balance, we expect to raise our $132 fair value estimate by a low-single-digit percentage, a touch behind what would be suggested by time value.