Yum! Brands, Inc. (YUM) — This company is the operator, franchiser and licenser of the largest number of fast food restaurants in the world, including well-known names such as KFC, Taco Bell and Pizza Hut, with over 41,000 stores in 125 countries.
When the company reported third-quarter results in early October, it missed on both the top and bottom line, reporting adjusted earnings of $1 a share on revenue of $3.4 billion. This was due in part to weakness in China, where same-store sales grew just 2%.
Management plans to spin off its China operation in 2016, but they project same-store sales growth in that country of just 0% to 4% in the fourth quarter. They also cut earnings expectations for 2015 to “low-single digit” growth from a previous estimate of at least 10% growth.
YUM stock topped just under $96 in May and began a slide that took it to a low of $66.35 on Oct. 8. A huge gap drown from about $82 to $71 following the Q3 earnings miss resulted in a death cross, a long-term bearish signal. The subsequent rebound rally failed to even achieve the 50-day moving average, now at $76.44.
YUM stock is very weak, and even after the major decline it could provide short sellers with quick profits. I recommend selling shares short at $71 with a downside target of $62 by year end for a potential gain of 13%.
A stop-loss order should be entered at $74 to protect against theoretically unlimited losses. And check with your broker for any unusual restrictions on shorting YUM stock.
