On Friday, Loop Capital maintained its Hold rating on Yum! Brands (NYSE:YUM) stock with a steady price target of $135.00, following a deceleration in same-store sales growth at Taco Bell's U.S. franchises. The firm observed a slowdown from approximately 6% growth in the first half of the second quarter of 2024 to about 4% in the latter half.
Consequently, the second quarter's overall growth was around 5%, which, while below Loop Capital's initial 6% projection, still surpassed the consensus estimate of 4% growth.
In a detailed comparison, the 5% increase in the second quarter translated into a 9% gain on a two-year stacked basis, a slight decrease from Taco Bell's 10% growth reported in the first quarter of 2024.
However, the implied three-year stacks showed an acceleration, with the second quarter marking a 17% rise compared to 15% in the previous quarter. Despite this, early third-quarter data suggests a further decline, with same-store sales only up about 3% quarter-to-date.
The valuation of Yum! Brands by Loop Capital is based on an 18 times multiple of the estimated 2024 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA).
The firm's decision to maintain the Hold rating and the $135 price target reflects a cautious stance on the stock, taking into account the recent performance trends observed at Taco Bell's U.S. franchises. Loop Capital's analysis indicates a nuanced picture of growth, with some positive long-term trends despite recent short-term setbacks.
InvestingPro Insights
Investors considering Yum! Brands (NYSE:YUM) may find additional context in the company's financial health and market performance. With a market capitalization of $36.14 billion and a P/E ratio standing at 22.4, Yum! Brands presents a picture of stability in the fast-food industry. Notably, the company has demonstrated a commitment to shareholder returns, having raised its dividend for 6 consecutive years and maintaining dividend payments for 21 consecutive years, as highlighted in InvestingPro Tips. Additionally, the company's low PEG ratio of 0.7 suggests that its stock could be undervalued relative to its earnings growth potential.
On the operational front, Yum! Brands boasts a robust gross profit margin of 49.59% over the last twelve months as of Q1 2024. This financial metric is essential for investors as it indicates the company's ability to manage its cost of goods sold and maintain profitability. Furthermore, the company's liquid assets exceed short-term obligations, providing financial flexibility and reducing liquidity risk.
For those seeking more in-depth analysis, InvestingPro offers additional tips on Yum! Brands, which can be accessed by visiting https://www.investing.com/pro/YUM. There are 5 more InvestingPro Tips available, which could provide valuable insights into the company's performance and potential investment opportunities. Remember to use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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