The launch of new weight-loss drugs like Ozempic, which cause people to eat less, has hurt fast-foods stocks like Yum Brands. However, these drugs come with serious side effects, which limits their use. We feel this company’s top brands will continue to attract customers, particularly in overseas markets.
The company’s forward-thinking approach keeps it at the forefront of digital innovation as it upgrades online ordering systems and leverages artificial intelligence (AI) to drive sales growth.
Meanwhile, the stock trades at 22.0 times the company’s 2024 earnings forecast. We feel this is a reasonable multiple in light of its ongoing revenue and earnings expansions.
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YUM! BRANDS INC. (New York symbol YUM; www.yum.com) operates over 57,000 restaurants in more than 155 countries. Its main banners are KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). Franchisees now operate 98% of outlets.
Yum continues to upgrade its online ordering systems as part of its plan to get 100% of its sales through digital channels. That includes installing more self-serve ordering kiosks at its restaurants.
The company is also using artificial intelligence (AI) software to drive its sales and earnings growth.
For example, Yum paid an undisclosed sum in 2021 for Kvantum, which makes AI software to analyze customers’ ordering habits. The company then uses that data to create marketing promotions that encourage repeat visits and more spending per visit.
Growth Stocks: New outlets and lower taxes boost sales and rocket earnings for Yum Brands
Yum’s revenue in the third quarter of 2023 rose 4.1%, to $1.71 billion from $1.64 billion a year earlier. However, that missed the consensus forecast of $1.77 billion.
The higher sales are largely because Yum opened 1,130 gross new outlets (it did not report store closures) in the quarter. The company also continues to benefit from strong customer demand for digital ordering and delivery services.
On a same-store basis, overall sales improved 6%. Same-store sales rose 6% at KFC, 8% at Taco bell and 1% at Pizza Hut.
The better revenue and a lower tax rate pushed up earnings before unusual items by 32.1%, to $1.44 a share from $1.09. That topped the consensus estimate of $1.28.
The company’s projected earnings will probably improve about 10% in 2024 to $5.84 a share, and the stock trades at 22.0 times that forecast. That’s a reasonable p/e in light of Yum’s improving growth prospects and popular brands. The $2.42 dividend yields 1.9%.
Recommendation in Wall Street Stock Forecaster: Yum Brands Inc. is a buy.
