Free Trial

Expect Yum Brands (NYSE: YUM) to Struggle After Earnings

Expect Yum Brands (NYSE: YUM) to Struggle After Earnings

Yum Brands (NYSE: YUM) reports earnings on June 29. No matter what numbers the company may post, it looks like it’s going to be a rough summer for the parent company of several well-known fast-food chains.

Analysts are expecting Yum Brands to post earnings per share of 50 cents on revenue of $1.15 billion. The whisper number is saying Yum will surprise to the upside at 54 cents EPS. Both numbers would be lower on both a sequential and year-over-year (YoY) basis.

But in what is becoming a broken record, analysts are going to be more interested in the company’s guidance. Did the company improve the 7% decline in comparable-store sales from the first quarter? And is the company seeing better results now that dine-in options are available at some locations.

A large franchisee has declared bankruptcy

The immediate problem is that one of its leading franchisees, NPC International is expected to declare bankruptcy. NPC is the largest Pizza Hut and Wendy’s (NASDAQ: WEN) franchisee with 1,200 and 400 restaurants respectively.

The immediate concern seems to be Pizza Hut. Yum! Brands was already alerting analysts and investors to what it regarded as “choppiness” in the Pizza Hut segment this year. However, it was generally accepted that YUM might benefit from the Covid-19 pandemic. And in early June, YUM stock climbed approximately 70%.

But since then, the stock has stopped rallying. And the expectation is that there may be more struggles ahead.

The lack of dine-in eating is taking its toll

Just this week, McDonald’s (NYSE: MCD) reported disappointing earnings. The company also announced it may close up to 200 restaurants. Part of the reason for McDonald’s struggles is a similar problem for Yum. Dine-in service is still limited, and in some states it is still not allowed. Yum Brands is the parent company for such brands as KFC, Taco Bell, The Habit Burger Grill, and WingStreet. All of these brands rely on dine-in service.

And although the company has made investments in new service and technology solutions, it still needs to have its restaurants open. Unlike fast-casual chains such as Chipotle Mexican Grill (NYSE: CMG), the restaurants in Yum’s portfolio are not necessarily the first names that come to mind when hungry customers get their DoorDash or GrubHub (NYSE: GRUB) deliveries.

Lost in a sea of take-out options

Throughout this pandemic, millions of Americans have been doing their part by staying home. But at the same time, customers were mindful of the plight of many restaurants. The problem for a company like Yum Brands is that many Americans decided that they would rather order from local “mom and pop” restaurants rather than the large chains. I know that for me, it wasn’t about the quality of the food. In fact, Pizza Hut got a fair share of my business. But I was mindful of the small businesses that were in danger of not re-opening.

And Yum also lost the benefit of being an easy lunch option for working Americans.

Will the future be more of the same?

The reality of the novel coronavirus is that regardless of how you feel about it, it’s not going away soon. We may (emphasis on may) be learning how to live with it better, but it will be a part of our national conversation even after a vaccine is available.

And that’s why I disagree with the analysts who have arrived at a consensus 12-month price target of $101.90 for the stock. Sure, it would seem that this quarter will mark the bottom. But that doesn’t mean the company is close to whatever a new normal is supposed to be.

YUM stock had a meteoric run in 2019, but it looks like the stock got a bit over its skis at a price near $120. Here’s another way to think about. The company’s revenue in each of the last two years was approximately $5.6 billion. In 2016, revenue was just under $11 million.

In 2016, YUM stock was trading in the $60 dollar range. In 2019, it was trading in the $90 range. Yes, the stock had many catalysts going for it from 2017 through 2019. But in the midst of those catalysts, the company’s revenue was going down. That tells me the stock might have been fairly valued after the March selloff.  And why I think Yum Brands may leave a bad taste in investors’ mouths.

Where should you invest $1,000 right now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here

(Almost)  Everything You Need To Know About The EV Market Cover

Click the link below and we'll send you MarketBeat's guide to investing in electric vehicle technologies (EV) and which EV stocks show the most promise.

Get This Free Report
Chris Markoch
About The Editor

Chris Markoch

Editor & Contributing Author

Retirement, Individual Investing

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
McDonald's (MCD)
4.5618 of 5 stars
$292.85-0.8%2.28%25.71Moderate Buy$319.46
Chipotle Mexican Grill (CMG)
4.7425 of 5 stars
$56.38-3.8%N/A52.48Moderate Buy$64.47
Wendy's (WEN)
4.3523 of 5 stars
$19.72+0.3%5.07%20.76Hold$20.36
Yum! Brands (YUM)
4.6578 of 5 stars
$132.76+0.3%2.02%24.32Hold$146.44
Compare These Stocks  Add These Stocks to My Watchlist 


Featured Articles and Offers

Recent Videos

ISRG Stock Surges: AI and Healthcare Innovation at the Core
Energy Vault’s 100% Stock Jump: CEO Discusses $350M Project in Australia in MarketBeat CEO Series
Market Shifts After Election: What Stocks Could Benefit Most?

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines