Yum! Brands Stock (NYSE:YUM) Remains Resilient. Should You Buy?

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by Samuel Pordengerg Mar 15, 2023 News
Yum! Brands Stock (NYSE:YUM) Remains Resilient. Should You Buy?

There is growing uncertainty and investors are looking for resilience. The brands that are owned byYUM are Pizza Hut, Kentucky Fried Chicken, and taco Bell. No matter what the world does, it will continue to eat. Thanks to its premium business model, global expansion, and growth across its brands, the stock continues to be resilient. I will wait for a better entry point for the stock as it looks fairly valued at the moment.

It's recent results are looking good. Despite weakness in the Chinese region, Brands reported an upbeat Q4. The expansion of operating margins was reported across all of its brands. The Pizza Hut segment's Q4 operating margin improved by 530 bps.

Let's look at the underlying fundamentals to make an investment decision with the stock close to its all-time high.

Robust Growth from Unit Expansion Despite Headwinds

The resilience of the business was one of the highlights of the Q4 results. In spite of the macroeconomic challenges, the company opened 4,560 gross units and added 3,100 net new units during the year. Given the challenges in key markets like China and Russia, unit development is commendable.

The company opened 1,584 new Pizza Hut units, 2,447 new units at Kentucky Fried Chicken, and 486 new units at taco bell. The total restaurant count increased to 55,361 thanks to the new units added.

The growth of global same-store sales was driven by a strong performance from the taco bell segment. Net unit growth as well as an acceleration in international development aided in the strong momentum at taco bell in q4

The company has benefited from a number of strategic initiatives that include a new food menu with value offerings, as well as content marketing campaigns to attract more customers.

Margin upside and the benefits of scale bode well for the stock in the long run. The Chinese market should add to its revenues and margins.

Impressive Dividends and Buybacks

Despite a tough economic environment, the company has continued to grow its dividends. The company increased its quarterly dividend by 6.1% after reporting its Q4 earnings.

The current dividend yield of 1.85% is better than the average of 0.6%. It has an average five-year dividendPayout ratio of 43.7% and a currentPayout ratio of 49%.

The company bought back 10 million shares in the year 2022. Over 5% of the current market cap was returned to investors through the company's combined dividends and returns.

Is YUM Stock a Buy, According to Analysts?

Analysts are cautiously optimistic about the stock, giving it a Moderate Buy rating with 11 Buys and 8 Holds. That's right, Yum! The brands average price forecast is $145.67.

YUM Stock Looks Fairly Valued

The company has traded at a premium to its peers. The premium is justified because of its favorable industry-leading position and three growing brands.

The company's P/E ratio is higher than the peer group median. It is trading close to its five year average of 29x. It is cheaper than Mcdonald's, which is trading at a P/E of 32x.

Conclusion: Wait for a Better Entry Point

During uncertain times, YUM is a great stock to buy. With a strong balance sheet and unit growth among its top three brands, it's not hard to see why it's doing well.

The stock is fairly valued at current levels despite the fact that it has a new menu with something for everyone. There is a chance that the share price will dip in the coming months. I will remain on the sidelines until that day.

There is a disclosure.