Third Point Reveals 'Significant Stake' in Yum! (YUM) and New Position in Devon (DVN)

Shares of Yum! Brands (NYSE: YUM), the second largest global quick service restaurant, spiked Friday morning after Third Point, run by Dan Leob, released its Q1 investor letter revealing a " significant stake" in the company. Leob thinks the company is at the early stages of turning the page on recent troubles in its Chinese business.

"We believe this development should neutralize the largest overhang on the stock, set the stage for a dramatic profit recovery over the next 12-24 months, and change the public market narrative around long-term shareholder value-creation for the company," said Leob.

"With China stabilizing and on the road to recovery, we see scope for significant earnings growth ahead as profits recover in the near to medium term and exceed prior peak in the long-term as the company opens more restaurants to meet the needs of the expanding Chinese middle class," added the hedge fund manager.

Leob also revealed a new position in Devon Energy (NYSE: DVN), an E&P company with a $28 billion market cap. Leob said Devon stands out by combining limited downside with an underappreciated, valuable asset.

"Subtracting embedded midstream value (and associated debt) and a “non-core” but cash-generative Canadian oil sands asset, investors are creating Devon’s domestic E&P business for the value of the company’s existing US production. As a lucrative kicker, investors also get Devon’s vast “tier 1” acreage positions in the Delaware/Midland basins, Eagleford shale and Cana Woodford for free. Valuing Devon’s acreage alongside companies like CXO, XEC and PXD – where we see significant asset overlap in certain plays suggests the market is undervaluing Devon’s US E&P business by $10-15 billion or $25-35 per share," said Third Point.

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