Yum! Brands (YUM): PT Increases but Rating Stays At Market Perform - Wells Fargo

Wells Fargo analyst, Jeff Farmer reiterated his Market Perform rating on Yum! Brands (NYSE: YUM). Overall, a decent quarter driven by better margins offset by softer sales, but 1-year same-store sales (SSS) trend improvement in China and FY16 guidance raise will likely move shares higher near term. YUM reported Q2 EPS of $0.75 (+9% yr/yr), modestly ahead of the $0.74 Street estimate with the upside driven by better-than-expected franchise margin (+190bps yr/yr) and China restaurant-level margin expansion (+100 bps yr/yr to 15.6%), offset by weaker-than-expected SSS at Taco Bell. With the 1H 2016 in the books and trending above original expectations, management raised its FY16 operating profit growth target to ‘at least 14%’ (vs. 12% prior). Based on our expectation for continued improvement in YUM’s China division into the 2H 2016 (top and bottom lines) balanced against weakening sales trends elsewhere.

The analyst raised his 2016E EPS to $3.68 from $3.67 and 2017E EPS to $4.19 from $4.18. Raising our valuation range to $85-$89 from $82-84 to reflect an increase in our 2016E EBIT. Earnings call at 9:15am ET on 7/14.

For an analyst ratings summary and ratings history on Yum! Brands click here. For more ratings news on Yum! Brands click here.

Shares of Yum! Brands closed at $85.74 yesterday.

You May Also Be Interested In

• BofA Securities Double Upgrades Sonic Auto (SAH) to Buy
• Harley-Davidson (HOG) PT Lowered to $36 at Citi
• American International Group (AIG) PT Raised to $87 at Deutsche Bank, New Buy Catalyst Call Idea