Today's Momo Momentum Stock To Watch: Yum Brands (YUM)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Yum Brands ( YUM) as a momo momentum candidate. In addition to specific proprietary factors, Trade-Ideas identified Yum Brands as such a stock due to the following factors:

  • YUM has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $497.6 million.
  • YUM has a PE ratio of 4.
  • YUM is currently in the upper 30% of its 1-year range.
  • YUM is in the upper 25% of its 20-day range.
  • YUM is in the upper 35% of its 5-day range.
  • YUM is currently trading above yesterday's high.
  • YUM has experienced a gap between today's open and yesterday's close of 1.9%.

'Momo Momentum' stocks are valuable stocks to watch for a variety of reasons including historical back testing and price action. Market technicians refer to such stocks as being in a mark-up phase before a possible distribution period and price decline. Technical analysts and traders frequently find that the factors referenced above tend to create a temporary burst of strong wind in a stock's sail. Nevertheless, all successful traders must excel at maximizing gains while keeping losses to an absolute minimum. For that reason, the holding period on momo momentum stocks must always be a primary consideration, and this part of the puzzle is ultimately at the discretion of each individual's risk tolerance and portfolio risk management skills.

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More details on YUM:

YUM! Brands, Inc., together with its subsidiaries, operates quick service restaurants. It operates in five segments: YUM China, YUM India, the KFC Division, the Pizza Hut Division, and the Taco Bell Division. The stock currently has a dividend yield of 1.8%. YUM has a PE ratio of 4. Currently there are 7 analysts that rate Yum Brands a buy, no analysts rate it a sell, and 10 rate it a hold.

The average volume for Yum Brands has been 4.1 million shares per day over the past 30 days. Yum has a market cap of $39.1 billion and is part of the services sector and leisure industry. The stock has a beta of 0.98 and a short float of 1.1% with 1.02 days to cover. Shares are up 24.1% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Yum Brands as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, expanding profit margins 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 ratings report include:
  • 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 7.4%. 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.

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