Yum! Brands (YUM) Stock Gains After Third Point Discloses Stake

NEW YORK (TheStreet) -- Shares of Yum! Brands (YUM) were gaining 4.2% to $89.58 Friday after hedge fund Third Point disclosed that it took a new position in the fast food company.

The hedge fund said that it now holds a "significant" stake in Yum! Brands, though it didn't disclose the exact size of the stake, according to Reuters. Third Point said that Yum! Brands recently "turned the page on recent trouble in its Chinese business," and that it expects a dramatic profit recovery in the next one to two years.

Yum! Brands is based in Louisville, KY and owns and operates the KFC, Pizza Hut, Taco Bell, and WingStreet fast food chains.

About 3.7 million shares of Yum! Brands were traded by 9:58 a.m. after Third Point disclosed its stake, compared to the company's average trading volume of about 3.8 million shares a day.

TheStreet Ratings team rates YUM BRANDS INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate YUM BRANDS INC (YUM) a BUY. This is driven by several positive factors, 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 notable return on equity, expanding profit margins and increase in stock price during the past year. We feel these 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:

  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength 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.
  • 36.77% is the gross profit margin for YUM BRANDS INC which we consider to be strong. Regardless of YUM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, YUM's net profit margin of 13.80% compares favorably to the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.9%. Since the same quarter one year prior, revenues slightly dropped by 3.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • YUM BRANDS INC's earnings per share declined by 6.9% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over 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 ($3.50 versus $2.29).
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry average. The net income has decreased by 9.3% when compared to the same quarter one year ago, dropping from $399.00 million to $362.00 million.
  • You can view the full analysis from the report here: YUM Ratings Report
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