Yum Brands Inc. (NYSE:YUM) is set to report FQ4 2014 earnings after the market closes on Monday, February 3rd. Yum Brands is a US based restaurant company which operates through Taco Bell, KFC, Pizza Hut and others. Yum is the largest fast food company in the world by number of units, operating over 39,000 restaurants. Recently Yum stock took a large hit after being downgraded by Wells Fargo which cited an avian flu outbreak in China as a concern. China accounts for over 50% of Yum's revenue and analysts expect sales growth in the world's most populous country to continue. Here is what investors expect Yum Brands to report Tuesday.
The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.
The current Wall Street consensus expectation is for Yum to report 80 cent EPS and $4.235B revenue while the current Estimize.com consensus from 21 Buy Side and Independent contributing analysts is 80 cent EPS and $4.239B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Yum to report in-line with Wall Street on profit but exceed slightly on revenue.
Over the previous six quarters the Estimize.com consensus has been more accurate than Wall Street in predicting Yum's EPS and revenue 4 times each. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small differential compared to recent quarters.
The distribution of estimates published by analysts on the Estimize.com platform range from 77 cents to 83 cents EPS and $4.157B to $4.312B in revenues. This quarter we're seeing a small distribution of estimates compared to previous quarters.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrower distribution of estimates signals more agreement in the market, which could mean less volatility post earnings.
Throughout the quarter the EPS estimate from Wall Street fell from 82 cents to 80 cents while the Estimize consensus dropped from 81 cents to 80 cents. Both groups have lowered their revenue expectations with Wall Street's consensus declining from $4.341B to $4.235B. Timeliness is correlated with accuracy and shrinking revenue expectations going into a report are often a bearish indicator.
The analyst with the highest estimate confidence rating this quarter is j_holliman who projects 80 cents EPS and $4.220B in revenue. In the Winter 2014 season j_holliman rated as the 22nd best analyst and is ranked 7th overall among over 3,700 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case j_holliman agrees with the Estimize community that Yum will report in-line with Wall Street on EPS but j_holliman takes the opposite view on revenue expecting Yum Brands to come up short.
While the stock has been getting hammered recently, analyst expectations for this quarter are not that bad. The Estimize.com community consensus is that Yum will meet Wall Street expectations on profit and produce slightly more revenue than expected by Wall Street.