On Tuesday, Evercore ISI shifted its stance on Yum! Brands (NYSE:YUM), downgrading the stock from "Outperform" to "In Line" and adjusting the price target to $145 from the previous $160. The decision comes in response to recent performance concerns, particularly at Taco Bell, where growth has been tepid.
The downgrade was prompted by the modest sales increments at Taco Bell, which saw only a 1-2% rise during the initial five weeks of the third quarter. This underperformance led to a revision of the third-quarter same-store sales (SSS) growth forecast, dropping from 5% to 2%, below the consensus estimate of 3.5%.
Expectations had been higher earlier in the year, with the introduction of new offerings like the Cheez-It, Cantina Menu, and the Deluxe (NYSE:DLX) Cravings Box, but these have not spurred the anticipated acceleration in year-to-date sales.
In addition to the sluggish trends at Taco Bell, there are concerns over Yum Brands' other markets. The data from China and other emerging markets have been weakening, raising doubts about the company's ability to meet its 2025 operating profit goals. If sales do not pick up, the company might struggle to adhere to its projected financial trajectory.
Yum! Brands' operating profit algorithm for 2025 is now under scrutiny due to these emerging challenges. The company's performance in the near term is crucial to achieving these long-term financial targets, and current trends suggest that adjustments may be necessary.
The revised price target of $145 reflects the new outlook on the company's financial health and market position. This adjustment comes as analysts reassess the potential for Yum! Brands to navigate the current market dynamics and deliver on its growth promises.
In other recent news, Starbucks Corporation (NASDAQ:SBUX) has been the subject of several significant developments. Morgan Stanley (NYSE:MS) has lowered its price target for Starbucks from $104 to $98, while maintaining an Overweight rating.
The firm cited factors such as a lower-than-expected operating margin forecast and a modest foreign exchange headwind. Meanwhile, Goldman Sachs (NYSE:GS) initiated coverage on Starbucks stock with a Buy rating, emphasizing the company's potential for a favorable risk-reward scenario.
The company has also secured a legal victory with the U.S. Supreme Court ruling in its favor against a lower court's injunction that had ordered the reinstatement of seven employees dismissed amid unionization efforts. Furthermore, Starbucks, along with Coca-Cola (NYSE:KO) Co., has initiated procedures to protect its trademarks in Russia, despite having ceased operations in the country.
In terms of business operations, Brazilian restaurant chain operator Zamp is set to acquire the rights to operate Starbucks in Brazil, along with a number of the company's stores, for $22.7 million.
Lastly, Starbucks is facing increased competition in China, leading to the issuance of more discount coupons to maintain its market presence. These recent developments highlight the ongoing strategic and operational adjustments within Starbucks Corporation.
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