Q4 Preview: Yum Brands (YUM) Expected to Post Solid Qtr, But Worries Remain

Shares of Yum Brands Inc. (NYSE: YUM) are trading down nearly 1 percent Monday ahead of the release of its fourth-quarter results after the closing bell.

The Wall Street quarterly consensus for Yum Brands is $0.74 per share in earnings on $4.03 billion in sales. During the fourth quarter of last year, the company reported earnings of $0.63 per share on $3.56 billion in total sales.

For the full year 2011, analysts on the Street are currently estimating $2.86 per share in earnings on $12.55 billion in total sales.

The fourth quarter conference call is scheduled for 9:15 am ET on February 7, 2011.

According to data from Bloomberg, 15 analysts rate Yum Brands at Buy, 6 are at Hold, and 1 maintains a Sell rating. The average price target on shares of YUM is $65.50 with a range from $52 to $76.

Analyst Comments:

• Goldman Sachs forecasts the company will announce earnings inline with the Street's consensus but will report that same-store-sales were considerably higher. Goldman estimates same-store-sales growth of 3.5 percent for the quarter, substantially higher than the 2.2 percent increase the Street is forecasting. The firm notes that Taco Bell’s same-store-sales in the U.S. may have even turned positive.
  
  Despite its bullish same-store-sales forecast, Goldman is reaffirming its Sell rating on the company going into the release.
  
  
• JPMorgan highlights any pull back or signs of a sell off following the release may present an attractive entry point. Going into the release, the firm estimates earnings will be inline with the Street’s consensus of $0.74 per share.
  
  An analyst at the JPMorgan comments, "tactically speaking we would not be adding to positions in front of the quarter. Very short-term investors may trim exposure with the expectation of buying shares back several percentage points lower. While we argue for longer-term sustained structural multiple expansion given the changing composition of YUM’s business towards international growth, we believe opportunity for near term expansion is limited."
  
  JPMorgan is reiterating its Overweight rating and $68 price target ahead of the release.
  
  
• Deutsche Bank is maintaining its Hold rating on the company going into the release as it forecasts earnings of $0.74 on $4.09 billion in total revenues. For the quarter, the firm states food inflation will be the major headwind to global restaurant margin given the recent run up in China. The company will benefit from an extra week during the quarter. Some of the areas of focus during the conference call will include; the impact of recent Little Sheep acquisition, pricing plans for China, lapping difficult same store sales compares in China and an update on Taco Bell trends.

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