Yum by Kopin Tan
Highlighted companies: Yum! Brands Inc. (YUM), McDonald's Corp. (MCD), Chipotle Mexican Grill Inc. (CMG), Starbucks Corp. (SBUX)
Summary: Shares of Yum! Brands Inc. (YUM), which owns KFC, Pizza Hut, Taco Bell, A&W and Long John Silver's, have soared 43% since Aug. 1, more than twice the average of other restaurant stocks and 4x the S&P 500. Up its sleeve: A new KFC logo (with a trimmer colonel), a resuscitated Taco Bell, and plans to turn around a "flat" Pizza Hut chain including a co-branding scheme to sell WingStreet wings together with pizzas. But it's YUM's China foray that has investors buzzing, with 22% projected growth (compared to 10% worldwide and 5% domestic) Yum has 3x McDonald's Corp.'s (MCD) presence in China. But in the short-term YUM may have a hard time producing numbers that can "wow" the Street, having already touted its China growth (which still only accounts for 24% of its 2007 projected revenues) in a September analyst meeting, and the Pizza Hut turnaround presently a long-term project. It is already at 20x earnings -- the top of its range. Given the poor odds for a short-term surge to the upside, and how expensive YUM options are, GS strategist John Marshall suggests selling out-of-the-money calls against the stock to pad yield.
Related: Are Yum!'s China Margins Sustainable? • Yum!'s Quarterly Call Focuses on KFC, Pizza Hut & New Businesses in China • Yum! Localizes China Fast Food Strategy • Jim Cramer's Take on YUM • Yum! Brands F3Q06 (Qtr End 9/9/06) Earnings Call Transcript