Yum! Brands (YUM): Cutting Estimates Ahead Of The Split - RBC
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RBC Capital analyst, David Palmer, reiterated his Outperform rating on shares of Yum! Brands (NYSE: YUM) as he looks forward to hearing about new initiatives at the company's investor day on 10/11.
Following the slight 2Q EPS miss, he reduced 2016 and 2017 EPS estimates from $3.68 and $4.18 to $3.65 (+15% YOY) and $4.14 (+13% YOY) based on lower SSS sales in China as it recovers from the South China Sea protests (4-5pp SSS headwind) offset by accelerating margin recapture and stable to improving momentum in the Taco Bell and KFC divisions.
New SSS forecasts are for 0%, 3%, -1% and 2% in 4Q16 for China, KFC, Pizza Hut, and Taco Bell respectively vs. our prior estimate of 2% across all divisions.
Despite the changes, the $97 price target remains based on a SOTP analysis, which yields a $64 value from the New Yum and a $33 value for Yum China.
Yum China is valued at 10x 2017 EV/EBITDA translating to a 21x P/E while the New Yum is valued at 14x 2017 EV/EBITDA, translating to 23x P/E.
No change to the price target of $97.
Shares of Yum! Brands closed at $87.44 yesterday.
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