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Yum Brands Inc YUM

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Morningstar’s Analysis

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Comp Outperformance, Restaurant Base Optimization Efforts Position Yum for Accelerating Growth

R.J. Hottovy, CFA Sector Strategist

Analyst Note

| R.J. Hottovy, CFA |

Our positive long-term bias remains in place following wide-moat Yum Brand's third-quarter update, as impressive U.S. comps for each of the three brands (increases of 9%, 6%, and 3% for KFC, Pizza Hut, and Taco Bell, respectively), efforts to optimize the Pizza Hut store base in the U.S., and signs of improvement in many key international markets (KFC and Pizza Hut international comps fell 7% and 9% but improved from last quarter) all signal strong growth potential in a postpandemic environment. We remain comfortable with the long-term assumptions underpinning our unchanged $105 fair value estimate--average annual system sales of 7%, including 3%-4% comps and almost 4% unit growth excluding Pizza Hut closures tied to NPC International bankruptcy, and high-single-digit core operating profit growth--and we believe the market is underappreciating the long-term growth story.

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Company Profile

Business Description

As the parent company for more than 50,100 restaurant locations, Yum Brands operates one of the largest global quick-service restaurant systems. Concepts include KFC (24,600 units), Pizza Hut (17,800), Taco Bell (7,400), and The Habit (280). Yum Brands generated $53 billion in system sales in 2019 (53% KFC, 25% Pizza Hut, 22% Taco Bell). In November 2016, Yum China was spun out as a stand-alone company, but it is paying 3% of systemwide sales to Yum Brands annually as a trademark franchisee. Franchisees operated 98% of Yum Brand locations as of September 2020.

1441 Gardiner Lane
Louisville, KY, 40213
T +1 502 874-8300
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2019
Stock Type Cyclical
Employees 34,000