Yum Brands (YUM) Shows Signs Of Being Water-Logged And Getting Wetter

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 "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) 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 $184.7 million.
  • YUM has traded 1.9 million shares today.
  • YUM traded in a range 204.9% of the normal price range with a price range of $2.10.
  • YUM traded below its daily resistance level (quality: 25 days, meaning that the stock is crossing a resistance level set by the last 25 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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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 8 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 3.6 million shares per day over the past 30 days. Yum has a market cap of $39.5 billion and is part of the services sector and leisure industry. The stock has a beta of 1.10 and a short float of 1.9% with 4.84 days to cover. Shares are up 27.3% year-to-date as of the close of trading on Friday.

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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 7.2%. 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 ($3.49 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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