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Yum Brands (YUM) Marked As Today's Roof Leaker Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Yum Brands ( YUM) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Yum Brands as such a stock due to the following factors:

  • YUM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $275.5 million.
  • YUM has traded 3.6 million shares today.
  • YUM is trading at 3.97 times the normal volume for the stock at this time of day.
  • YUM crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in YUM with the Ticky from Trade-Ideas. See the FREE profile for YUM NOW at Trade-Ideas

More details on YUM:

YUM! Brands, Inc., together with its subsidiaries, operates quick service restaurants in the United States and internationally. It operates in six segments: YUM Restaurants China, YUM Restaurants International, Taco Bell U.S., KFC U.S., Pizza Hut U.S., and YUM Restaurants India. The stock currently has a dividend yield of 1.9%. YUM has a PE ratio of 28.5. Currently there are 10 analysts that rate Yum Brands a buy, no analysts rate it a sell, and 11 rate it a hold.

The average volume for Yum Brands has been 2.3 million shares per day over the past 30 days. Yum has a market cap of $36.5 billion and is part of the services sector and leisure industry. The stock has a beta of 0.74 and a short float of 1.4% with 1.99 days to cover. Shares are up 2.4% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Yum Brands as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, increase in stock price during the past year and growth in earnings per share. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 8.4%. Since the same quarter one year prior, revenues rose by 10.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Hotels, Restaurants & Leisure industry average. The net income increased by 18.9% when compared to the same quarter one year prior, going from $281.00 million to $334.00 million.
  • Net operating cash flow has significantly increased by 56.70% to $514.00 million when compared to the same quarter last year. In addition, YUM BRANDS INC has also vastly surpassed the industry average cash flow growth rate of -21.57%.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • YUM BRANDS INC has improved earnings per share by 19.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, YUM BRANDS INC reported lower earnings of $2.36 versus $3.37 in the prior year. This year, the market expects an improvement in earnings ($3.68 versus $2.36).

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