Analyst Upgrade for Yum! Brands Makes Sense

Yum Brands (YUM) caught a nice upgrade to buy from UBS (UBS) yesterday. The stock is rallying about 3 - 4% on the analyst report.

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 (DRI) and Brinker International (EAT) than McDonald’s (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.

Comments

[livesinhiscar:]

YUM has sounded like an interesting investment at times.
The one thing that has kept me away from it is that most KFC or Taco Bell restaurants that I pass by are usually empty most of the time (except of course those at ultra-prime locations).
They never seem to have the customer traffic of a MCD
Also, there is only one Long John Silvers that I have seen near where I live and the parking lot outside it is usually totally empty.
.

2008 Nov 18 12:07 PM