This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Worst Is Over for Yum! Brands

NEW YORK (TheStreet) -- Back in July, shortly after Yum! Brands (YUM) reported its second-quarter earnings results, I argued that the stock -- at the time trading around $72 per share -- would not go higher than $75. Yum! investors disagreed.

Fast-forward three months later: Shares are trading right around where they were in July. Before we continue, I need to make it clear that this is not -- by any means -- a bearish thesis on Yum!. In fact, on more than one occasion, I've come to the company's defense, commending its management team for taking appropriate action to address not only the scandal involving two suppliers to the company's KFC restaurants, but also ensuring consumers that the chickens (if cooked properly) were safe to eat.

Nevertheless, while it is clear that the company continues to progress from what has been a rash of bad publicity, I still don't believe there is much value in the stock, which now seems fairly priced on the basis on long-term, free-cash-flow growth of 11% to 13%. With the company's third-quarter earnings results due out Tuesday, it will take exceptional same-store sales and better-than-expected guidance to send the shares higher. Investors should definitely not hold their breath, expecting either scenario will play out.

Although analysts will be looking for better results -- and by "better" I mean numbers that are meaningfully superior to the periodic updates provided by the company -- the good news is, given that China accounts for more than 50% of Yum!'s overall revenue, the Street already knows the full extent of Yum!'s troubles in that market.

This also means, regardless what the numbers may say, there will be very limited downside in the stock. What's more, as bad as Yum!'s results in China have been, including a 20% decline in same-store sales in the July quarter, things were never as bad as previously believed -- even though same-store-sales for the company's KFC restaurants in China was down 26% year over year.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,915.07 -70.54 -0.42%
S&P 500 1,964.68 -8.15 -0.41%
NASDAQ 4,396.2040 -22.83 -0.52%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs