The company's sales in China, its biggest market, have started to grow at double-digit rates following flat growth in the last fiscal year. Moreover, menu changes, ad campaigns and 700 new restaurants will fuel Yum!'s growth in China in the coming years. But the company still has to find a way to post same-store sales growth in India, another key emerging market which underpins Yum!'s future.
The stock looks so good that the Action Alerts PLUS portfolio managers,TheStreet's Jim Cramer and Stephanie Link, bought more Yum! today. Link and Cramer see momentum for a "double-digit bottom line and high-single-digit top line" for Yum! (For more of Link and Cramer's investment wisdom, check out Action Alerts PLUS.)
Yum! shares are down 1.06% year to date. The stock closed down 6 cents on Friday at $74.76, but should go higher due to further improvements in China and better results from Taco Bell.
At the current price, investors can buy the shares cheaper than an insider did around 10 days ago. As per a Securities and Exchange Commission filing, one of Yum!'s directors purchased 10,000 shares at an average price of $76.12 per share. That's an endorsement, too.
Last month, Yum! announced its first quarterly results in which its global revenues increased by 7% year-over-year to $2.27 billion, while its net income climbed 18% to $399 million. This was due to an increase in the number of outlets and a rebound in China.
The company opened 249 new restaurants in international markets, 86% of which were located in emerging markets such as China, Vietnam, India, Pakistan and Indonesia. In China alone, Yum! established 123 new outlets.
Yum! Brands, unlike McDonald's, is focused on emerging markets whose economies are expected to grow three times faster than the developed markets for the foreseeable future.
When it comes to emerging markets, it doesn't get any bigger than China. According to the BBC, Yum! is the biggest foreign brand in the country. Currently, the company has more than 4,600 KFC and 1,300 Pizza Hut outlets operating in more than 950 cities. There are more than twice as many KFCs in the country as McDonald's.
In the previous quarter, the company's revenues from China increased by 20% year-over-year to $1.38 billion, thanks to the robust growth in same-store sales: 11% at KFC and 8% at Pizza Hut. The increase in sales was driven by the Chinese Lunar New Year, which is a peak period for sales.