Loop Capital has increased the price target for Yum! Brands (NYSE: NYSE:YUM) to $143 from $135 while retaining a Hold rating on the stock as the firm's analyst noted that Yum! Brands reported a modest earnings per share (EPS) beat for the second quarter of 2024, with an adjusted EPS of $1.35.
The figure was slightly below Loop Capital's estimate of $1.37 but surpassed the consensus estimate of $1.33.
The company experienced a 3% decline in comparable sales for KFC, which did not meet the flat forecast and consensus expectation of a 1% decrease. Pizza Hut also saw a 3% drop in comparable sales, which was marginally below the anticipated 2% decline.
On a brighter note, Taco Bell outperformed expectations with a 5% increase in comparable sales, exceeding both the firm's 4% growth estimate and the consensus prediction of a 3% rise.
The decision to maintain the Hold rating on Yum! Brands comes alongside the revised price target. Loop Capital has based the new target on approximately 18 times the estimated 2025 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), a shift from the previously used 18 times the 2024 estimate.
Yum! Brands reported a 10% growth in core operating profit for the second quarter of 2024, marking a robust performance in a challenging operating environment. The company's focus on affordable consumer options, digital expansion, and sustainable practices has contributed to its positive outlook, with Taco Bell and KFC International being significant drivers of system sales and operating profit growth.
Yum! Brands is also expanding its digital and technology strategy, including the deployment of AI-enabled systems and the expansion of its digital platforms.
The company is planning for further expansion in the UK and Canada, primarily focusing on Pizza Hut. Yum! Brands anticipate at least 8% core operating profit growth in 2025, demonstrating confidence in its long-term profit growth. The company also has a milestone of 10,000 KFC stores globally in sight as part of its expansion goals.
InvestingPro Insights
Following the recent price target update by Loop Capital for Yum! Brands, it's important to consider additional insights that could further inform investors. Yum! Brands has demonstrated a commitment to shareholder returns, having raised its dividend for 6 consecutive years, and has maintained dividend payments for an impressive 21 years. This consistency is underscored by a current dividend yield of 1.96%, with a notable dividend growth of 10.74% over the last twelve months as of Q2 2024. This is particularly relevant for income-focused investors considering the stability and growth potential of their investments.
Moreover, Yum! Brands is trading at a low price-to-earnings (P/E) ratio relative to its near-term earnings growth, with a P/E ratio of 24.42 and an adjusted P/E ratio for the last twelve months as of Q2 2024 at 23.2. This could suggest that the stock is undervalued considering its growth prospects. Additionally, despite a modest revenue growth of 1.63% over the last twelve months as of Q2 2024, the company has managed to maintain a strong gross profit margin of 49.28%, which is indicative of its operational efficiency.
For investors seeking more insights, there are 11 additional InvestingPro Tips available for Yum! Brands, which can be found at https://www.investing.com/pro/YUM. These tips can provide a deeper analysis and help investors make more informed decisions regarding their investment in Yum! Brands.
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