Should You Take a Chance With Yum! Brands?

With shares of Yum! Brands (NYSE:YUM) trading around $77, is YUM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Yum! Brands is a quick-service restaurant company based on a number of system units with approximately 37,000 units in more than 120 countries and territories. The company — through its three main restaurant chains in KFC, Pizza Hut, and Taco Bell — develops, operates, franchises, and licenses a worldwide system of restaurants. These popular food chains prepare, package, and sell a menu of low-priced food items. Convenient and tasty foods continue to rise in popularity worldwide, which allows Yum! Brands to provide food items demanded by consumers.

On Wednesday afternoon, Yum! Brands reported its second-quarter earnings. The stock, which hit an all-time high on Tuesday, pulled back on the news. This shouldn’t surprise investors, as the stock had been priced for perfection. The company reported earnings per share of 73 cents on $3.2 billion of revenues. These figures represent 20 percent and 10 percent growth rates, respectively. The vast majority of the company’s growth came from its Chinese division, which grew sales at 21 percent, and most of this growth came from the company’s KFC restaurants.

T = Technicals on the Stock Chart Are Mixed

Yum! Brands stock has been moving higher over the last couple of months. However, the stock is currently pulling back and may need time to consolidate. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Yum! Brands is trading between its rising key averages, which signals neutral price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Yum! Brands options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Yum! Brands options

19.28%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Average

Average

September Options

Average

Average

As of Thursday, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.