Shares of quick-service restaurant operator Yum! Brands, Inc. (NYSE:YUM) rallied Wednesday following a beat by YUM, as well as upbeat sentiment about the company’s sales growth in China. As a result, the post-earnings pop in YUM stock may have unlocked a next leg higher in the stock, which active investors and traders could jump on.
First, the numbers.
Yum! Brands earnings for the first quarter came to 81 cents per share, beating expectations of 72 cents. Revenues of $2.62 billion came in about 4% lower year-over-year, as well as $200 million below what analysts were looking for.
The focus, however, for analysts and investors in Yum! Brands — as it has been for several years now — was once again on sales growth and other metrics of its China division. Comps at YUM’s 6,700 stores fell 12% in the first quarter, though that was an improvement from its fourth quarter. Meanwhile, Yum! Brands still expects to open 700 new restaurants in China this year and reaffirmed its outlook for the full year.
YUM Stock Charts
Looking at the YUM stock price through the lens of its multiyear weekly chart, we see that the going since spring 2012 has been choppy. While quicker traders found opportunities for defined-risk trades, more tactical or structural longs in Yum! Brands have been frustrated as it currently only sits roughly 13% above the spring 2012 highs.
However, the price action since April 2012 has taken place in a well-defined, upward-sloping range where each higher low was bought aggressively and each too-steep rally was sold. Looking at momentum via the Relative Strength Index (RSI), we see that after bottoming in the October 2014 broad market selloff, it has since steadily risen higher.
After Wednesday’s post-earnings rally, momentum now looks poised to push higher still and could as a result see the stock move to the very upper end of the trading range.
Zooming in on the daily chart, we see that since early March, YUM stock has been consolidating and visibly waiting around for a news catalyst to move it higher or lower. Wednesday’s post-earnings rally finally released shares out of this consolidation phase and on a daily closing basis above its summer 2014 highs, and as a result to fresh all-time highs.
The way YUM stock gapped higher at the open on Wednesday and closed above the red dotted line looks promising for a continued push higher in coming weeks.
Barring any quick bearish reversal of Wednesday’s rally, YUM stock now looks poised to move toward the $90 mark.
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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.
