Barclays on U.S. Restaurants: A Visit to China - Key Takeaways on the Growth Opportunity for YUM and MCD
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Rating Summary:
19 Buy, 23 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Barclays on U.S. Restaurants: A Visit to China - Key Takeaways on the Growth Opportunity for YUM and MCD
Barclays analyst, Jeffrey A. Bernstein, said, "We just returned from a week in China at investor conferences hosted by YUM Brands (NYSE: YUM) and McDonald's (NYSE: MCD). While formal meetings were in Shanghai, we visited cities large and small in an effort to better understand the ultimate 'size of the prize.' We met with local management, toured restaurants and sized up the competitive landscape. Our prior such visit was to Beijing in 2007, and relative to just four years ago, management confidence has grown significantly. As expected, neither offered actionable news flow. And while the long-term opportunity remains large for both, importantly China represents a modest 3% of MCD profits, relative to an outsized 40% for YUM."
"YUM - China is the largest component of growth: China represents 40%+ of YUM's WW operating profit, with guidance for 15%+ growth per year (or 7pp of 10% annual EPS growth). This is driven by double-digit comp (18% in 2Q11) and low double-digit unit growth (12%+ in 2011). There are 3,300+ KFCs and 650+ Pizza Huts in China."
"MCD - China is a small but rapidly growing component of growth: China represents 3%+ of MCD's WW operating profit, yet growing rapidly (though specific guidance not offered). This is driven by both double-digit comp (14%+ in 2Q11) and low double-digit unit growth (12%+ in 2011). There are 1,400+ McDonald's in China."
Barclays analyst, Jeffrey A. Bernstein, said, "We just returned from a week in China at investor conferences hosted by YUM Brands (NYSE: YUM) and McDonald's (NYSE: MCD). While formal meetings were in Shanghai, we visited cities large and small in an effort to better understand the ultimate 'size of the prize.' We met with local management, toured restaurants and sized up the competitive landscape. Our prior such visit was to Beijing in 2007, and relative to just four years ago, management confidence has grown significantly. As expected, neither offered actionable news flow. And while the long-term opportunity remains large for both, importantly China represents a modest 3% of MCD profits, relative to an outsized 40% for YUM."
"YUM - China is the largest component of growth: China represents 40%+ of YUM's WW operating profit, with guidance for 15%+ growth per year (or 7pp of 10% annual EPS growth). This is driven by double-digit comp (18% in 2Q11) and low double-digit unit growth (12%+ in 2011). There are 3,300+ KFCs and 650+ Pizza Huts in China."
"MCD - China is a small but rapidly growing component of growth: China represents 3%+ of MCD's WW operating profit, yet growing rapidly (though specific guidance not offered). This is driven by both double-digit comp (14%+ in 2Q11) and low double-digit unit growth (12%+ in 2011). There are 1,400+ McDonald's in China."
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