NEW YORK (TheStreet) -- Yum Brands (YUM) shares are up 2.8% to $72.50 in trading on Thursday, rebounding from the dip it experienced after the company announced dismal same store sales results in China yesterday and its announcement earlier in the week that it is cutting its 2014 growth forecast.
The operator of Pizza Hut and Taco Bell restaurants said that it saw a 15% decline in Chinese same store sales during the month of November. Yum Brands is the largest Western restaurant operator in the country with over 6,400 stores there.
On Tuesday, the company lowered its full year forecast for the second time this year as the tainted food supplier scandal from earlier this year has continued to hurt its bottom line. Yum Brands now expects to see full-year profit growth in the mid-single digits percentage range, down from the 6%-10% growth it revised from its original 20% growth expectations.
TheStreet Ratings team rates YUM BRANDS INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate YUM BRANDS INC (YUM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, impressive record of earnings per share growth, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 165.8% when compared to the same quarter one year prior, rising from $152.00 million to $404.00 million.
- YUM BRANDS INC reported significant earnings per share improvement 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 ($3.23 versus $2.36).
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, YUM BRANDS INC has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.4%. Since the same quarter one year prior, revenues slightly dropped by 3.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- In its most recent trading session, YUM has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
- You can view the full analysis from the report here: YUM Ratings Report