Yum! Brands Stock is Looking Yummy

A year removed from its historic plunge into the $50's, fast-food restaurant operator Yum! Brands (NYSE:YUM) is approaching its record intraday high of $119.72 set back in August 2018.

The remarkable turnaround is a credit to the company's ability to adapt to the pandemic economy along with market expectations of tasty growth ahead. Fresh off its first-quarter report, Yum! Brands appearS well on its way to setting a new all-time high and delivering further growth for loyal shareholders.

How Was Yum! Brands' Q1 2021 Financial Performance?

All things considered, Yum! Brands had a good 2020. Due in large part to the success of delivery and pick-up alternatives, system sales were only down 3%. Taco Bell sales actually increased 1%. So, the salad bar was set rather high heading into this week's first quarter report—and the KFC, Pizza Hut, and Taco Bell franchisor left investors wanting seconds.

First-quarter same store sales rose 9% and total revenue increased 18% to $1.49 billion. The Pizza Hut division performed particularly well recording 12% same-store sales growth and a company-best 30% operating profit growth. Digital system sales were once again the standout performer as more than $5 billion worth of chicken, pizza, and tacos were ordered online.

Adjusted earnings per share (EPS) came in at $1.07 easily putting the toppings on the analyst consensus of $0.87. And as the Street was looking for $1.45 billion in revenue, the convincing top and bottom-line beat for Yum! Brands was a good way to start the new fiscal year.

What is the Outlook for Yum! Brands?

As economic conditions continue to inch towards normal, the outlook for Yum! Brands is a bit brighter these days. Although it's hard to say what the new normal will look like for fast-food operators, it's safe to say people haven't forgotten their beloved KFC, Pizza Hut, and Taco Bell pitstops.

In many ways, it will be business as usual as Yum! Brands look to build off its 50,000-plus restaurant base across 140 countries. More than 400 net new units were added in the first quarter and while this amounts to just 1% unit growth, this metric is likely to accelerate as economic conditions improve.

Aside from building out its physical footprint, Yum! Brands will look to build off its digital momentum by continuing to bolster its technological capabilities. Last month Yum! Brands acquired Israel-based startup Tictuk Technologies. It owns a software that will allow customers to place to-go orders by sending a simple text message, or through social media apps like WhatsApp and Facebook Messenger.  The technology has already been tested at approximately 900 restaurants across 35 countries and the early impact on sales has been positive.

The addition is a shrewd move given the expectation that some consumers will shun fast-food in favor of sit-down restaurants as more places open their doors and capacity restrictions are lifted. It remains to be seen how consumers' eating habits will evolve in the post-pandemic world, but one thing that will stay in Yum! Brands favor is people's growing appetite for convenience especially in the case of younger Millennials and Gen Zers.

Is Yum! Brands Stock a Buy?

Yum! Brands stock has finished higher in each of the last six years and is already up more than 8% in 2021. While a seventh straight year of positive returns looks to be in the cards, new investors may want to wait for a pullback opportunity.

From a technical analysis perspective, Yum! Brands is hovering 6% above its 50-day moving average, a distance the low volatility stock has historically seldom strayed to. Past departures from the commonly watched trend line have been followed by corrections and the same is likely to happen in the days ahead. However, a low volume pullback towards the $110 would be as good a time as any to start a Yum! Brands position.

Most sell-side analysts call Yum! Brands either a 'buy' or a 'hold' with Goldman Sachs issuing the only 'sell' rating over the last 3 months. The other 16 firms consider the stock at least 'hold-worthy' with a slim majority hanging on to 'buy' ratings despite the stock's recent climb. Price targets peak out at $135 which is the bullseye Argus Research gave Yum! Brands earlier this month. The Argus analyst cited the company's prospects for sales growth as it returns to unit expansion mode after a closure-filled 2020.

Things certainly seem to be looking up for Yum! Brands and the fast-food restaurant industry as a whole. Restaurants as a reopening play has been a popular trade but based on some stronger than expected first-quarter results, there may be more room to run. Continued progress in the global fight against COVID-19 should lead to more yummy results at Yum! Brands as it builds off the strength of its globally recognized brands.