YUM Brands Inc (YUM) is the operator of big name fast-food restaurants like Taco Bell, Pizza Hut, and KFC with fairly large market cap of $32.68 billion. The company was recently hurt in an outbreak in avian flu which has badly hurt the YUM’s KFC faction in China as the company has heavily invested in that area in hopes of hitting the jackpot in the new market.
SHORT-TERM SETBACK ONLY
Nonetheless, this is a short-term setback that should be resolved with an eventual rebound in that overseas investment. YUM has experienced similar poultry epidemics and has recovered healthily in the past, so this is not the end for the company.
However, according to analysts YUM needs to better manage its growth opportunities and spread out its investments to other fruitful markets in order to avoid future roadblocks like this again. The Chinese markets currently represent over 50% of YUM’s total revenue.
REVENUE STREAMS
However, YUM’s U.S. holdings have brought in significant revenue as well and have helped stabilize the company’s growth. Stock prices have steadily increased since the company’s creation, and they are currently trading at the highest prices in YUM’s 16-year history. YUM has increased 9.23% YTD with stock prices up $7.61 (11.72%) since last July. Of the company’s $13.42 billion in total revenue ttm, $1.48 billion represents net income. YUM has an EPS of 3.14 and a P/S of 2.4.
THE COMPETITION
As far as competition, YUM only outperforms its biggest competitor, McDonalds, in P/E (23.13), but then again McDonalds is the largest fast-food corporation in the world with a market cap over three times that of YUM.
FORECASTS
Analysts expect YUM to report $0.54 EPS on $2.93 billion in revenue. The average estimate for this year’s revenue is $13.51 billion with an average EPS estimate of $3.07. YUM has beaten analyst estimates in three of the last four earnings reports, so an increase this quarter would definitely bolster shareholder investing and set the fast-food company on a lucrative path.
Performance of the last 8 Quarters:
4/24/13 $64.15 $68.65 $+4.50 (7.0%)
02/05/13 $63.94 $62.08 $-1.86 (-2.9%)
10/10/12 $65.70 $70.99 $+5.29 (8.0%)
07/19/12 $65.55 $65.86 $+0.31 (0.5%)
04/19/12 $72.94 $71.41 $-1.53 (-2.1%)
02/07/12 $63.19 $64.85 $+1.66 (2.6%)
10/05/11 $49.44 $48.12 $-1.32 (-2.7%)
07/14/11 $55.58 $56.37 $+0.79 (1.4%)
Historical Earnings Move: Mean 3.4%, Median 2.6%
Implied Movement:
07/12 $72.5 $3.08 – $3.18 22 x 55 4.3%
MY TRADE:
Buying the YUM July Weekly 75-77.5 Bull Call Spread for $.35
Risk: $35 per 1 lot
Reward: $215 per 1 lot
Breakeven: $75.35
Reward to Risk: 7-1
GREEKS OF THIS TRADE:
Delta: Long
Gamma: Long
Theta: Short
Vega: Long
