by Serge Berger | April 24, 2014 8:05 am
Yum Brands (YUM) — the operator of KFC, Pizza Hut and Taco Bell restaurants — is many a fast-food lover’s favorite destination, sure, but also a favorite among the active trading and investing community. As such, when Yum Brands reports earnings, people listen.
On Tuesday after the close of trading in New York, Yum Brands reported its earnings for the first quarter. Earnings came to 87 cents per share of YUM stock, beating analysts’ predictions of 85 cents. To put this in perspective, on a year-over-year basis, the EPS figure was up a respectable 24%. Revenue, however, came in a little shy of estimates, with Yum Brands bringing in just $2.72 billion vs. the $2.80 billion estimated.
YUM also reaffirmed its outlook for the year and sees fiscal year 2014 EPS growing at least 20% — not too shabby.
Given the company’s big presence in China however, much of the focus in the numbers and the outlook is on growth in that part of the world. In the quarter, YUM saw China comparable-store sales growth of 9% and operating profit growth of 80% in China. The company is optimistic about its business opportunities in China, and as a whole, YUM stock investors seemed to take the news in stride.
YUM stock rallied intraday but ended up closing marginally lower, which puts both active traders and investors in an interesting spot.
First, from the long-term perspective, YUM stock continues to nicely hold its 2009 uptrend. Each time the uptrending line (black) has been touched since 2009, the stock seems to quickly accelerate higher. The last time the line was retested was at the January lows, and shares literally took off to the upside like a scolded monkey.
With yesterday’s post-earnings rally, YUM stock pushed right into its upper resistance line, which marks the top of a nearly two year-range.
Even though YUM stock on Wednesday once again reached the upper end of the multiyear range, on the daily chart, the pattern (through a purely technical lens) is much friendlier and in fact remains bullish. It doesn’t take too much imagination to depict an inverse head-and-shoulders pattern (blue boxes), where the right shoulder managed to find good support right at the 200-day moving average (red line).
Despite the fact that YUM stock yesterday finished the day well off the intraday lows, this bullish multimonth pattern remains intact.
However, as I’m not one to prematurely chase breakouts, I’m looking for YUM stock to again move back toward the $78 area (black resistance line). If the stock in coming days or weeks manages to close above this level, then upside toward $83-$84 could become very realistic and a high-probability trade setup could present itself.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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