On Tuesday, Morgan Stanley (NYSE:MS) adjusted its stance on Yum! Brands stock (NYSE: NYSE:YUM), downgrading it from Overweight to Equalweight and reducing the price target to $140 from $158. The stock, currently trading at $125.32 and near its 52-week low of $122.13, has seen a year-to-date decline of 6.6%.
According to InvestingPro data, the company maintains a market capitalization of $35 billion. The firm's analysts cited several reasons for the more cautious outlook on the company, known for its global presence in the fast-food industry.
Morgan Stanley acknowledged the strengths of Yum! Brands, including its business model and leadership, suggesting the stock could be attractive to long-term investors. InvestingPro analysis reveals the company has maintained dividend payments for 21 consecutive years, with a current yield of 2.14%.
The firm expressed difficulty in identifying catalysts for upward estimate revisions in the near term. The analysts pointed out that, while 2025 might look better in comparison to the previous year, it is partly due to more favorable comparisons rather than substantial business improvements.
The analysts highlighted four areas of concern: the mixed results of international exposure in 2024, the limited potential for further cost-cutting after reductions in 2024, the lack of a significantly different comparable sales story for 2025, and expectations for unit growth to meet but not exceed projections.
Despite these concerns, the analysts noted that Yum! Brands stock is trading at a P/E ratio of 23.2x, which might limit downside risks. They suggested that the current valuation could be justified given the market conditions and, therefore, only modest upside potential is seen over the next 12 months.
This assessment aligns with InvestingPro's Fair Value calculation, which indicates the stock is currently fairly valued. For deeper insights into Yum! Brands' valuation and access to additional ProTips, including the company's comprehensive financial health analysis, investors can explore the full Pro Research Report available on InvestingPro.
In other recent news, Yum Brands has seen a significant change in its leadership structure.
Sabir Sami, the CEO of the KFC Division, is stepping down from his role, with Scott Mezvinsky set to succeed him. This development was part of recent filings with the Securities and Exchange Commission. In the world of analysts, Evercore ISI has reiterated an In-line rating for Yum Brands, highlighting Taco Bell's strong fourth quarter performance and potential for continued success. Meanwhile, Loop Capital has maintained a Hold rating on Yum Brands after Taco Bell's same-store sales growth surpassed expectations in the fourth quarter of 2024.
On the other hand, Yum Brands has terminated its franchise agreement with IS Gida A.S., a significant operator of KFC and Pizza Hut units in Turkey, due to non-compliance with operational standards. Despite this, the company does not foresee any significant impact on its operating profit from 2025 onward.
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