I agree with the bullish conclusion that the analyst arrived at. UBS lowered its price target to $40. My target is $42 so we are not far off. YUM will benefit from declining commodity prices and the substitution effect as consumers trade down to more value oriented restaurants.
The problem with YUM is that the investing public perceives YUM to be more like Darden Restaurants (NYSE:DRI) and Brinker International (NYSE:EAT) than McDonald’s (NYSE:MCD). The truth is that YUM’s businesses are much closer to that of MCD than the casual dining restaurants. YUM has a similar growth strategy in China to that of MCD. Stick with YUM because there is good value in the stock.
Disclosure: At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC was long shares of MCD & YUM --- although positions can change at any time.