Earnings look set to rise 20.8% as this restaurant operator with 48,000 locations in over 140 countries continues to expand its reach through partnerships with local franchisees.
The stock trades at 26.9 times the company’s 2019 earnings forecast as the company plans to pay out 45% to 50% of its earnings as dividends.
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YUM! BRANDS INC., (New York symbol YUM), operates 48,000 restaurants in over 140 countries. Its main banners are KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). The U.S. accounts for 45% of its overall sales and earnings.
The company has signed a new master franchising agreement with Burman Hospitality to open 600 new Taco Bell outlets in India over the next 10 years. Yum currently has 35 locations in that country.
Partnering with local franchisees helps cut the risk of expanding internationally.
Yum also plans to keep opening new Taco Bell restaurants in that region, including Thailand, Australia and New Zealand.
Those expansions will help the company reach its goal of 9,000 Taco Bell units (up from the current 7,500) by 2022.
Growth Stocks: Stock gains seem driven by the Chinese market
The stock has gained 40% since the company set up its Yum China subsidiary as a separate firm on November 1, 2016. Yum Brand shareholders then received one share in the new firm for each YUM share they held.
The gain is largely due to Yum Brand’s success at controlling costs, including selling stores to franchisees. That lowers its operating expenses and frees the company from maintaining these outlets. Yum has now achieved its goal of having franchisees operate 98% of its stores.
The company’s biggest single franchisee remains Yum China. Under the terms of the spinoff, the now-independent Chinese firm pays 3% of its sales to its former parent.
Yum Brands aims to reduce its annual capital spending to around $100 million compared to $234 million in 2018.
Those savings will help it pay down its debt of $10.1 billion (as of December 31, 2018). That’s a manageable 32% of its market cap.
Yum’s earnings will probably rise 20.8%, from $3.17 a share in 2018 to $3.83 in 2019. The stock trades at 26.9 times that forecast. That’s an acceptable p/e in light of Yum’s improving outlook. The company also recently increased its quarterly dividend by 16.7%, to $0.42 a share, up from $0.36. The new annual rate of $1.68 yields 1.6%. Yum plans to pay out 45% to 50% of its earnings as dividends.
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