Yum! Brands (NYSE:YUM) reports earnings after the close on Wednesday, although that isn’t why the company has been in the news of late. Taco Bell belongs to YUM, along with other well-known names such as Pizza Hut, KFC, and Long John Silver’s. You might have heard that a class-action lawsuit is taking issue with Taco Bell’s use of the word “meat.” The suit seeks no money other than attorney’s fees, and the media is having some fun with the news (e.g., anyone paying less than a buck for a taco shouldn’t have very high expectations in the first place). Taco Bell is vigorously defending itself with full-page newspaper ads and the like.
It would appear that few are taking this suit seriously, and that Taco Bell and YUM should survive the controversy. The stock dropped 2.5% on Friday, although so did much of the market. Yesterday, the shares appeared to right themselves, logging their first daily gain in a week.
So with that business largely priced into the shares, investors can now concentrate on YUM’s earnings, which hold more promise than their taco fillings. The company hasn’t missed an estimate in five years, and the stock has done well after recent reports. Mmmmm, tasty.
Overall expectations are muted heading into earnings. The put/call and short-interest ratios are on the rise, indicating some added skepticism. And just 11 of 20 analysts rate the shares a “buy,” leaving room for upgrades.
YUM is certainly not immune to rising food costs, as are all restaurants. But the company is racking up impressive sales gains overseas, especially in China, and is looking to offload some lesser performing brands to fatten the bottom line. YUM may not blow anyone’s hair back with its earnings report on Wednesday. But with expectations low, the company may not have to. With the share price beaten down of late, it won’t take much meat to keep investors satisfied, just like a tasty dollar taco.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.