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Analysts Defend Yum! Brands After Company Warns on Meat Scandal Impact

Stocks in this article: YUM

NEW YORK (TheStreet) -- After Yum! Brands (YUM) reported last night that an expired meat scandal in China was having a significant negative effect on its sales in the country and the stock retreated, a number of analysts defended the shares today.

WHAT'S NEW: After one of its suppliers in China was caught selling expired meat, Yum reported last night that the scandal was having "a significant negative impact" on its sales in the Asian country. Stifel analyst Paul Westra "strongly defended" Yum's stock, however, as he thinks the expired meat scandal will prove to be "a minor incident." Yum immediately cut its ties with the supplier that sold the contaminated meat and Yum had never bought a large amount of meat from the supplier, Westra stated. Additionally, media coverage of the scandal appears to be subsiding, he wrote. Moreover, the scandal could cause Yum to franchise its restaurants in China more quickly and increases the chances of the company listing its China subsidiary in Asia, the analyst believes. Either option would be positive for the stock, according to the analyst, who is upbeat on the China subsidiary's long-term outlook but trimmed his price target on the U.S.-traded stock to $110 from $112. He thinks that the recent weakness in the shares has created a buying opportunity. Yum's same-store sales have likely dropped 15%-20% in the wake of the scandal, estimated Deutsche Bank analyst Jason West. The analyst estimated that the same-store sales of Yum's KFC and Pizza Hut China restaurants could fall about 15% starting in late July and continuing at that rate through approximately September. As a result, he cut his 2014 EPS estimate for the company to $3.24 from $3.61. He said that his estimates for the company were conservative. West reduced his price target on the name to $78 from $90. However, noting that the stock was already trading significantly below his target, West kept a Buy rating on the shares.

PRICE ACTION: In midday trading, Yum! sank 5.2% to $69.23.

Reporting by Larry Ramer.

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