On Wednesday, TD Cowen revised its stance on Yum! Brands (NYSE:YUM), upgrading the stock from Buy to Hold and setting a price target of $145.00. The firm's analysis suggests that Yum! Brands' current risk/reward profile is balanced, indicating a shift in expectations for the company's performance in the coming years.
The decision comes amid concerns that Yum! Brands might not meet consensus expectations for 2024-25. TD Cowen anticipates that the company's earnings per share (EPS) for those years could be 1% and 2% below the consensus, respectively. This forecast is partly due to the decision to remove the Taco Bell breakfast offering from one-third to two-thirds of its U.S. locations, which is expected to create a 1% to 2% headwind for comparable sales.
TD Cowen's analysis points to potential negative sales revisions as a result of the breakfast removal. Despite these challenges, the firm acknowledges that consensus EPS could still be attainable through cost-cutting measures. However, the analyst does not foresee these efforts leading to an expansion of the company's earnings multiple.
The price target of $145.00 reflects the analyst's assessment of Yum! Brands' valuation, considering the factors that could influence its stock performance. The upgrade to Hold suggests that the analyst does not currently see sufficient upside potential or downside risk to recommend purchasing or selling the stock at this time.
In other recent news, Yum! Brands reported a 10% growth in core operating profit for the second quarter of 2024, with Taco Bell and KFC International being significant contributors to system sales and operating profit growth. However, the company experienced a 3% decline in comparable sales for both KFC and Pizza Hut. Taco Bell outperformed expectations with a 5% increase in comparable sales, exceeding both Loop Capital's 4% growth estimate and the consensus prediction of a 3% rise.
Loop Capital maintained its Hold rating on Yum! Brands, keeping a steady price target of $143.00, reflecting current sales trends observed at Taco Bell franchisees across the United States. The firm's analysis suggested a consistent performance for Yum! Brands, despite a noticeable slowdown in sales growth in the later part of the quarter.
Yum! Brands also announced a quarterly dividend of $0.67 per common share. The company is planning for further expansion in the UK and Canada, primarily focusing on Pizza Hut, and expects at least 8% core operating profit growth in 2025.
InvestingPro Insights
To complement TD Cowen's analysis, recent data from InvestingPro offers additional context on Yum! Brands' financial position. The company's market capitalization stands at $37.46 billion, with a P/E ratio of 24.09, suggesting investors are willing to pay a premium for its earnings. This aligns with one of the InvestingPro Tips, which notes that YUM is "Trading at a high P/E ratio relative to near-term earnings growth."
Yum! Brands has demonstrated financial stability, maintaining dividend payments for 21 consecutive years and raising its dividend for 6 consecutive years. This consistent dividend policy may appeal to income-focused investors, especially given the current dividend yield of 2.01%. The company's ability to sustain and grow its dividend is supported by its profitability, as indicated by another InvestingPro Tip stating that YUM has been "Profitable over the last twelve months."
While TD Cowen expresses concerns about potential earnings misses, it's worth noting that Yum! Brands' revenue for the last twelve months as of Q2 2024 was $7.105 billion, with a modest revenue growth of 1.63%. The company's operating income margin of 34.69% suggests efficient operations, which could provide some cushion against the headwinds mentioned in the analyst report.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics beyond those mentioned here. The platform currently lists 8 more tips for Yum! Brands, providing a deeper dive into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.