YUM! BRANDS INC. $64 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 458.0 million; Market cap: $29.3 billion; Price-to-sales ratio: 2.2; Dividend yield: 1.8%; TSINetwork Rating: Above Average; www.yum.com) operates 35,822 fast-food restaurants in over 120 countries. Its main banners include KFC, Pizza Hut and Taco Bell.
The company now gets 49% of its sales and 38% of its earnings from its 5,251 outlets in China. It was the first fast-food chain to enter China, in 1987, and is now a leader in that country. Yum plans to open 700 more restaurants in China in 2012.
Yum aims to repeat this success in India, where it now has 479 outlets and plans to open 100 more by the end of 2012. Yum’s India division now accounts for less than 1% of its overall sales and earnings.
In the three months ended June 16, 2012, Yum’s revenue rose 12.5%, to $3.2 billion from $2.8 billion a year earlier. Same-store sales rose 10% in China, 7% in the U.S., 7% in India and 4% at its other international outlets. Earnings rose just 1.5%, to $0.67 a share from $0.66, because the company’s tax rate rose.
Yum recently hired celebrity chef Lorena Garcia to create several upscale menu items for its U.S. Taco Bell outlets. These dishes will feature whole black beans, cilantro rice, citrus- and herb-marinated chicken, and cilantro dressing. They should help Taco Bell compete with other chains that use fresh ingredients.
Yum’s long-term debt of $3.0 billion is just 10% of its market cap, so it can easily afford to keep expanding overseas and developing new menu items. It also holds cash of $984 million, or $2.15 a share.
The stock has fallen in the past few months, because investors are concerned that a slowing Chinese economy will weaken Yum’s earnings growth.
Even so, it trades at 19.6 times the $3.26 a share that Yum will probably earn in 2012. That p/e ratio seems high, but it’s still reasonable as Yum’s strong brands should continue to spur its overseas sales. The $1.14 dividend yields 1.8%.
Yum Brands is a buy.
