It’s Time to Step into Yum! Brands Stock

Popular restaurant franchisor Yum! Brands NYSE: YUM stock has been selling off with the benchmark indexes despite strong earnings. The Company is a franchisor of well-known restaurant brands including KFC, Pizza Hut, Taco Bell, and Habit Burger Grill. All brands are growing with KFC leading the pack at an 11% clip. The price/earnings is falling back to earth at 27X forward earnings. The Company has over 50,000 locations and launched 760 new restaurants in Q3 2021 with plans to continue opening new units at a 4.5% rate. The Company was a pandemic winner thanks to its drive-ins, mobile ordering, and take-out options. It continues to thrive during the reopening phase and even through COVID omicron surges as its touchless options are paying off. The recent selling in shares if providing prudent investors with opportunistic pullback levels to consider building a position in this value stock.

Q3 FY 2021 Earnings Release

On Oct. 28, 2021, Yum! reported its Q3 2021 earnings for the quarter ended in Sept 2021. The Company reported earnings of $1.22 per share versus consensus analyst estimates of $1.08 per share, a $0.14 beat. Revenues rose 10.9% year-over-year (YoY) to $1.61 billion versus $1.59 billion analyst estimates. Worldwide system sales excluding FX translation rose 8%, with KFC up 11%, Taco Bell up 6% and Pizza Hut up 4%. The Company reported 4% YoY unit growth and record Q3 net-new unit growth of 760. Digital system sales rose over $5 billion. Yum! CEO David Gibbs commented, “Our third quarter results, led by record-breaking unit development and sustained momentum in digital sales, are a testament to the strength of our Brands and the unmatched commitment and capability of our best-in-class franchise partners. I am proud that each of our global divisions contributed to delivering 760 net-new units in the quarter. Our 5% same store sales growth for the third quarter, or 3% same-store sales growth on a 2-year basis, demonstrates the resilience of our diversified global business model despite the headwind of the Delta variant in certain key markets. During the quarter, we advanced our digital capabilities with the acquisition of Dragontail and its AI-based integrated kitchen order management and delivery technologies that strengthens store operations, enhances the customer experience, and makes it easier for team members to run a restaurant. As we continue to navigate the short-term uncertainties of the COVID recovery, we are incredibly confident in the ability of our iconic brands and our world-class talent to drive growth and maximize stakeholder value by delivering on our long-term growth algorithm.”

Conference Call Takeaways

CEO Gibbs set the tone, “A key growth driver for our business remains the continued acceleration of our digital and technology strategy, including how we leverage our global scale with technology investments to enhance the customer and employee experience, strength in restaurants unit economics, and provide a competitive advantage for our franchisees. We're seeing strong and sustained momentum through our digital and off-premise channels across our global business, even as customers return to our dining rooms. We posted over 5 billion in global digital sales with a near 40% digital mix during Q3. We continued to expand delivery capabilities across the globe, setting a record this quarter with over 41,000 stores offering delivery to our customers. Most recently, we acquired Dragontails systems, which will allow us to tap into the powers of artificial intelligence to streamline the end-to-end food preparation process and further enhance our delivery capabilities. Where we've deployed Dragontails cutting edge technology, we found that it makes it easier for team members to operate and run a restaurant and helps our franchisee strengthen store operations, all resulting in a better customer experience. This is the perfect segue way to talk about our 4 RED. Starting with the KFC Division, which accounts for 52% of our operating profit, Q3 system sales grew 11% driven by a 6% same-store sales growth, and 7% unit growth.” He concluded, “Across all programs, we're focused on building a resilient business for the future with purpose and sustainability as the core. Our iconic brands and unmatched scale put us in a class of our own. We're competitively advantaged given the size and capabilities of our franchise system. And I'm thrilled with our teams as we continue to be nimble and meet the consumer where they are. Overall, I'm proud of how our business is performing and I'm confident that we're positioned to win in a post-COVID world.”

YUM Price Trajectories

Using the rifle charts on the weekly and daily times frames enable a precision view on the price action for YUM stock. The weekly rifle chart peaked at the $140.17 Fibonacci (fib) level before sharply reversing back down through the weekly 5-period moving average (MA) at $132.05 and 15-period MA at $128.71 as it heads towards the weekly 50-period MA at $122.03. The weekly stochastic reversed sharply falling under the 80-band towards the 60-band. The weekly lower Bollinger Bands sit at $116.29. The daily rifle chart has a downtrend that broke below the daily 200-period MA at $124.95. The falling 5-period MA sits at $126.07 followed by the 15-period MA at $132.16 The stochastic is oversold at the 3 band but may be trying to form an extreme mini inverse pup which can send shares towards the daily lower BBs at $120.45. The daily market structure low (MSL) buy triggers on a breakout above $126.85.

Prudent investors can look for opportunistic pullback levels at the $121.29 fib, $118.79 fib, $114.51 fib, $112.70 fib, $108.45 fib, $104.71 fib, $102.23 fib, and the $100.46 fib level. Upside trajectories range from the $134.65 fib up towards the $152.80 fib level.