Yum! Brands (YUM): Earnings Preview - Wells Fargo
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Wells Fargo analyst, Jeff Farmer, reiterated his Market Perform rating on shares of Yum! Brands (NYSE: YUM) ahead of the company reporting 3Q16 earnings on 10/5 (AMC). The analyst expects investors to focus on:
1) KFC China’s ability to hold SSS momentum (3Q-to-date SSS were up low-double-digits) and color on SSS through the first few weeks of 4Q16 which began on 9/3
2) PH Casual Dining recovery in China
3) persistence of the 3Q-to-date improvement at Taco Bell (TB) despite the softening industry backdrop (in 2Q14, TB posted its first negative SSS since 1Q14)
On New Yum!, investors remain curious about G&A efficiencies, which based on the analyst's peer analysis, appears to be an area for potential improvement (YUM currently spends about $26,000 per average system store vs. $15,000-$22,000 at highly franchised peers).
The analyst cut 2016E EPS to $3.70 from $3.72 and 2017E to $4.17 from $4.20 to reflect FX pressures.
No change to the $85-$89 valuation range which equates to 12.0-12.5x 2017E EBITDA.
Shares of Yum! Brands closed at $89.81 yesterday.
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