On Monday, Citi reaffirmed its Buy rating on Yum! Brands (NYSE:YUM), maintaining a price target of $58.80.
The company's third-quarter performance exceeded expectations, showcasing an 18% year-over-year increase in core operating profit, which was 5% higher than Citi's forecast. This growth was attributed to a stronger-than-anticipated improvement in comparable restaurant margins, which rose by 50 basis points year-over-year, and operating profit margins, which increased by 140 basis points.
Yum! Brands' third-quarter results demonstrated effective cost management, particularly in general and administrative expenses, and robust restaurant margins. This performance has addressed market concerns regarding competitive pressures that had previously impacted the company's restaurant margins. The company's earnings beat is seen as a sign of its resilience against industry competition.
In a move that underscores confidence in its long-term growth prospects, Yum! Brands announced an increase in its capital return program to shareholders. The program, which includes dividends and share repurchases, is set to expand to $4.5 billion for the period of 2024 to 2026. This represents a significant increase from the previously stated target of $3 billion.
Citi's endorsement of Yum! Brands' stock remains unchanged for both the U.S.-listed and Hong Kong-listed shares. The company's recent financial achievements and its commitment to enhancing shareholder value through the upsized capital return program contribute to Citi's positive outlook on the stock.
In other recent news, Yum! Brands reported a 10% growth in core operating profit for the second quarter of 2024, with significant contributions from Taco Bell and KFC International. However, the company experienced a 3% decline in comparable sales for both KFC and Pizza Hut.
Analyst firms Loop Capital, and TD Cowen have updated their outlook on the company. Both Loop Capital and TD Cowen maintained their hold ratings with price targets of $143 and $145 respectively.
Recent developments also include Yum! Brands' announcement of a quarterly dividend of $0.67 per common share and plans for further expansion in the UK and Canada, primarily focusing on Pizza Hut, with an expectation of at least 8% core operating profit growth in 2025.
InvestingPro Insights
Yum! Brands' strong third-quarter performance and increased capital return program are further supported by data from InvestingPro. The company's market cap stands at $37.21 billion, reflecting its significant presence in the fast-food industry. Yum! Brands has demonstrated consistent profitability, with an adjusted P/E ratio of 22.25 for the last twelve months as of Q2 2024, indicating investor confidence in its earnings potential.
InvestingPro Tips highlight Yum! Brands' commitment to shareholder value. The company has raised its dividend for 6 consecutive years and has maintained dividend payments for 21 consecutive years. This aligns with the recently announced expansion of the capital return program to $4.5 billion. Additionally, Yum! Brands' liquid assets exceed short-term obligations, suggesting financial stability to support its growth initiatives and shareholder returns.
The company's revenue growth of 4.51% in Q2 2024 and an impressive operating income margin of 34.69% for the last twelve months underscore its ability to manage costs effectively and drive profitability, as noted in Citi's analysis.
For investors seeking more comprehensive insights, InvestingPro offers 8 additional tips for Yum! Brands, providing a deeper understanding of the company's financial health and market position.
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