Should Yum! Brands Be Avoided Due to Recent News?
With shares of Yum Brands! (NYSE:YUM) trading at around $65.95, 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:
C = Catalyst for the Stock’s Movement
There hasn’t been much news for Yum! Brands recently, but the news that has come out has impacted the stock price. The most recent news is a downgrade to Hold from Buy by Argus. This comes only a few days after Oppenheimer Holdings Inc. reduced its price target on Yum! Brands to $74 from $82. Oppenheimer believes that 2013 EPS will come in below guidance, but it still maintains an outperform rating due to long-term potential.
The reasons for bearish sentiment recently relate to a slowdown in China, higher food costs, and a supplier issue. As far as the latter is concerned, there isn’t enough information available yet to pass judgment. Therefore, it will be left alone. As far as higher food costs go, this will cut into profits, but it will be manageable. In regards to China, recent stimulus policies might help, but only for the short term. It’s evident that China has peaked. China will continue to grow, but not at the breakneck pace we have seen over the past few years.
Yum! Brands still has a lot going for it. This is a company with a strong margins and a lot of cash flow. Those two factors alone make Yum! Brands appealing. But is the timing right? Let’s take a look at some important numbers.