Credit Suisse was disappointed in the company's financial update after attending its investor day.
"YUM's financial update was disappointing on the margin: Nov China SSS missed, 2016 EBIT guidance was below our model, and capital returns around the China spin were below our base case," the firm said in an analyst note.
Micky Pant, CEO of Yum! Restaurants in China, laid out a compelling plan to stabilize same-store sales at KFC China, but the firm remains concerned that store growth and macro and competition concerns will weigh on this recovery plan, Credit Suisse analysts said.
The Louisville, KY-based company is engaged in the restaurant business and is the parent company of the KFC, Pizza Hut and Taco Bell fast food chains.
Additionally, the company announced in October that it would spin off its China business into a publicly traded franchise of Yum! Brands by the end of next year, the Wall Street Journal reported.
The company's shares are up by 0.24% to $71.47 at the start of trading on Monday.
Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate YUM BRANDS INC as a Buy with a ratings score of B-. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, growth in earnings per share and solid stock price performance. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- YUM's revenue growth has slightly outpaced the industry average of 1.5%. Since the same quarter one year prior, revenues slightly increased by 2.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Hotels, Restaurants & Leisure industry average. The net income increased by 4.2% when compared to the same quarter one year prior, going from $404.00 million to $421.00 million.
- Net operating cash flow has significantly increased by 64.77% to $870.00 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 7.30%.
- YUM BRANDS INC has improved earnings per share by 6.7% 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 $2.29 versus $2.36 in the prior year. This year, the market expects an improvement in earnings ($3.15 versus $2.29).
- After a year of stock price fluctuations, the net result is that YUM's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: YUM