Yum Brands Inc Stock Buy Recommendation Reiterated (YUM)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Yum Brands (NYSE: YUM) has been reiterated by TheStreet Ratings as a buy with a ratings score of A-. The company's strengths can be seen in multiple areas, such as its expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

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Highlights from the ratings report include:
  • 35.50% is the gross profit margin for YUM BRANDS INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 13.29% trails the industry average.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. 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, with its decline in revenue, underperformed when compared the industry average of 2.7%. Since the same quarter one year prior, revenues slightly dropped by 7.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, YUM BRANDS INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • YUM BRANDS INC's earnings per share declined by 25.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, YUM BRANDS INC increased its bottom line by earning $3.37 versus $2.74 in the prior year. For the next year, the market is expecting a contraction of 9.2% in earnings ($3.06 versus $3.37).

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. Yum has a market cap of $33.1 billion and is part of the services sector and leisure industry. The company has a P/E ratio of 23.00, above the S&P 500 P/E ratio of 18.00. Shares are up 9.1% year to date as of the close of trading on Monday.

You can view the full Yum Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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