Yum! Brands (YUM): Banking on its Chinese operations

By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 3/8/12 Sign up for free Cabot Wealth Advisory e-newsletter

Yum! Brands (YUM), besides being one of only two companies I know that uses an exclamation point in its name, is a powerhouse in the quick-service and casual dining restaurant business. Yum’s KFC, Taco Bell and Pizza Hut brands are all well known in the U.S. and around the world, with around 37,000 restaurants in 120 countries and territories.

Three things really impress me about Yum! Brands:

First, the company was the first quick-service restaurant chain to take on the challenge of China. Pizza Hut is now the top casual dining chain in China, with more than 560 outlets in over 120 cities. And KFC, with significant menu additions to address Chinese tastes, is the number one quick-service restaurant brand in China.

Second, the company has been active in concentrating on its strengths. This was evident from Yum!’s sale of the Long John Silver and A&W All-American Food brands in December 2011. There was nothing wrong with either of those chains, but the three brands it retained are stronger. The company’s focus on Asia, which is its strongest growth market, is also apparent in its acquisition of Little Sheep, a Chinese chain of hot-pot restaurants. Clearly, Yum!’s management realizes the significance of its 13% gain in same-store sales in China in Q1.

Third, YUM (the stock) has registered 10 straight weeks of advancing stock price, which is a remarkable achievement in itself. The pace of price appreciation in YUM is low, but any stock that can string together 10 weeks without a pullback is on a roll, no matter how slow the advance is.

Yum! Brands has the global breadth to cushion a pullback in any national market. But it’s banking on its Chinese operations—which delivered 36% of 2011 revenue—to keep delivering growth. The stock’s 1.7% forward annual dividend yield is also attractive.
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Yum! Brands (YUM): Quietly impressive growth

By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 1/30/12

It’s hard for growth investors like me to look outside the hyperactive world of growth stocks, but it does happen occasionally. And Yum! Brands (YUM), a Kentucky-based restaurant franchiser that specializes in quick-service food, is definitely catching my eye.

Yum! has nearly 38,000 restaurants in its various chains, including KFC, Pizza Hut and Long John Silvers. The company has gotten lots of ink about the popularity of its KFC brand in China, and that’s a big driver of continuing growth. As the editor of Cabot China & Emerging Markets Report, I’m always interested in companies that have built national presences in China, whether they’re Chinese-owned or not.

That growth is quietly impressive, with a recovery from the four quarters of declining revenue in 2009 (hardly a surprise) to six quarters of single-digit growth through Q2 2011 and then a 14% jump in Q3. Impressively, earnings increased steadily even during the 2009 slump, and the most-recent four quarters have shown gains of 26% (Q4 2010), 7%, 14% and 14% (Q3 2011).

Yum! took a huge haircut (40 in September 2008 to 22 in November), but has made steady progress since then. The stock surges and bases, but its corrections are generally mild. After a correction from 58 last July to a double bottom at 47 in August and October, the stock has pushed ahead to 63, establishing it as a clear choice for investors seeking steady growth and a little income in the form of a 1.8% forward dividend rate.

Except for an occasional bite of the chicken at KFC, I don’t visit the restaurants that are under the Yum! umbrella very often. But I know value when I see it, and Yum!, even with its current P/E ratio of 23, should continue to prove attractive to investors with longer-term investment horizons.

If you’d like to see more of the slightly more volatile stocks that represent some of the fasting growing markets in the world, can check out Cabot China & Emerging Markets Report. Click here.

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