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Yum Brands Inc YUM

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Economic Moat

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Consumer Mobility, Stimulus, and Digital Drive a Quick Demand Recovery, but Yum Shares Still Rich

Sean Dunlop Equity Analyst

Analyst Note

| Sean Dunlop |

Wide-moat Yum Brands' first-quarter results surprised to the upside, with earnings per share (EPS) of $1.07 in the quarter outpacing FactSet consensus estimates of $0.87. Revenue also eclipsed expectations, with the firm's strong same-store sales (SSS) growth (8% at KFC, 11% at Pizza Hut, and 11% at Taco Bell) driving system sales nearly 15% higher than the year-ago period. While our longer-term assumptions remain unchanged, a faster-than-anticipated demand recovery, with two-year stacked SSS coming in roughly flat at KFC and Pizza Hut (and delivering an impressive 10% gain at Taco Bell), in tandem with impressive unit growth in the KFC division lead us to modestly increase our fair value estimate to $112 per share, up from $108 previously.

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Company Profile

Business Description

Yum Brands is a U.S.-based restaurant operator featuring a portfolio of four brands: KFC (25,300 global units), Pizza Hut (17,700 units), Taco Bell (7,500 units), and The Habit Burger (290 units). With $50 billion in 2020 systemwide sales, the firm is the second- largest restaurant company in the world, behind McDonald's ($90 billion) but ahead of Restaurant Brands International ($31 billion) and Starbucks ($19 billion). Yum is 98% franchised, with the largest franchisee, Yum China, created via a 2016 spin-off transaction (after which Yum China agreed to pay 3% royalties to Yum Brands in perpetuity). Yum is the newest evolution of Tricon Brands, formerly a division of PepsiCo, and generates the bulk of its revenue from franchise royalties and marketing contributions.

Contact
1441 Gardiner Lane
Louisville, KY, 40213
T +1 502 874-8300
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2019
Stock Type Cyclical
Employees 38,000

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