YUM! BRANDS INC. $65 (New York symbol YUM; Aggressive Growth Portfolio; Consumer sector; Shares outstanding: 451.0 million; Market cap: $29.3 billion; Price-to-sales ratio: 2.2; Dividend yield: 2.1%; TSINetwork Rating: Above Average; www.yum- .com) was the first fast-food chain to enter China, in 1987. Its 5,726 restaurants in China, including its KFC and Pizza Hut chains, now supply 50% of its sales and 45% of its earnings.
The company’s huge success in China is the main reason why the stock has jumped 448% in the past 10 years. However, recent allegations that Yum’s KFC outlets in that country bought raw chicken with higherthan- permitted levels of antibiotics have hurt its Chinese sales.
Following an investigation, Chinese regulators did not charge the company with violating food-safety standards.
This high concentration on China is one of the reasons why we recommend conservative investors buy McDonald’s (see left) instead of Yum. Moreover, although Yum operates more restaurants (36,846), its annual sales of $13.6 billion are just half of McDonald’s sales.
Yum also has a higher p/e ratio (20.1 times its projected 2013 earnings of $3.24 a share), and a lower dividend yield (2.1%). Even so, we still like Yum’s long-term outlook, particularly as it expands in other fast-growing markets like India, Russia and Africa.
Yum Brands is a buy.
