When it comes to KFC in China, Yum (YUM) isn’t out of the water yet. KFC announced that the chicken scare in China weighed on Q3 sales in a big way.
With other Yum brands (Pizza Hut and Taco Bell) picking up the slack and the next dividend fast approaching, is now the time to buy YUM at a bargain rate?
Company Profile
Some fast food aficionados may not have heard of Yum, but everyone certainly knows the restaurants Yum operates: Taco Bell, KFC and Pizza Hut. While these are big names in the U.S., Yum’s biggest business is now Yum China, with nearly 4,200 restaurants across 850 cities.
Interestingly enough, Chinese consumers can’t get enough of Colonel Sanders. In the past 25 years, more than 3,900 KFC locations have popped up all over China. The company also has a growing presence in India, Russia, Vietnam and many other emerging markets. In total there are 40,000 Yum-operated restaurants worldwide, driving more than $13 billion in sales last year.
Shareholder Value
If you’re a YUM shareholder at the close of Oct. 14, you will receive a quarterly dividend payment of 41 cents per share on Nov. 7. YUM’s 2.4% annual dividend yield happens to be one of the heftiest in the restaurants industry, but it does come below McDonald’s (MCD), which boasts a 3.6% yield.
Over the 10 years that Yum has paid a dividend, its payment has more than quadrupled. As another show of its commitment to giving shareholders their money’s worth, Yum is also in the middle of an aggressive stock buyback program.
Earnings Buzz
Despite this, I’m not recommending that you take a bite out of YUM. The fact is that Yum missed sales and earnings estimates for the third quarter. Yum reported adjusted Q3 earnings of 87 cents per share on $3.35 billion in revenue.
The analyst community expected Yum to earn 89 cents per share on $3.48 billion in revenue so the company posted a 2.2% earnings miss and a 2% sales miss. To add insult to injury, Yum slashed its 2014 earnings-per-share outlook. Yum had previously anticipated 20% annual earnings growth but now expects to post between 6% and 10% earnings growth, which is also well below the Street forecast of 14.8% EPS growth.
Current Ratings
Nowadays, investors just don’t seem to have an appetite for YUM; buying pressure has remained stagnant for the past 12 months. Thus YUM stock’s Quantitative Grade has dropped to a “D,” a sign of increased risk.
Yum has also seen several of its key financial metrics erode: Yum is floundering in terms of operating margin growth (D), earnings surprises and analyst earnings revisions (both Ds) and cash flow (C). However, YUM scores decently on earnings growth (B), earnings momentum (A) and return on equity (A). So YUM receives a “C” for its Fundamental Grade.
As of this posting, Oct. 8, I consider YUM a “C-rated hold.”
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Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
