Yum Brands Inc.YUM

Morningstar Rating

Stock Research and Analysis

by R. J. Hottovy, CFA

Yum Brands remains well diversified in the global quick-service restaurant (QSR) industry. Several of the firm's brands--including KFC, Pizza Hut, and Taco Bell--occupy the leading market position in their respective domestic categories. Moreover, we Read more

Bulls Say

Yum produces stable cash flow, even in challenging economic times, through long-term franchisee royalty and rent payments.

The firm remains a leader in multibranded units, which generate higher unit sales and returns on invested capital than single-brand units.

The acquisition of a 20% stake in the Little Sheep Hot Pot chain adds diversity to Yum's leading market position in China, which already includes 3,000 KFC and Pizza Hut locations as well as East Dawning, a Chinese fast food concept.

The introduction of Kentucky Grilled Chicken could generate higher restaurant traffic for KFC's domestic locations.

In 2008, Yum returned $2 billion of cash to shareholders via share buybacks and dividends. The firm targets an annual dividend payout ratio of 35%-40% of net income. Read more

Bears Say

The QSR industry is intensely competitive, marked by a history of price wars. Switching costs are virtually nonexistent.

A challenging global economy may weigh down near-term operating results across all geographies.

Bankruptcies among quick-service franchisees have accelerated. Tighter credit markets could make it more difficult for franchisees to remodel existing locations and build new restaurants.

Volatile commodity costs and foreign currency head winds could disrupt Yum's quarterly results.

Negative publicity over foodborne illness, food tampering, or controversial marketing campaigns could adversely affect store traffic. A shift toward healthier eating could cause some consumers to avoid Yum's restaurants. Read more

Strategy

Yum aims to build a portfolio of dominant restaurant brands in China, including KFC and Pizza Hut casual dining. The firm also seeks profitable international expansion outside China, including opportunities Read more

Management

In our view, Yum features a broad, seasoned management team with a record of balancing growth and profitability. David Novak has served as president of Yum since 1997 and was named CEO and chairman in 2000 and 2001, respectively. Although we believe Read more

Profile

With about 36,000 units in 110 countries, Yum Brands operates the largest quick-service restaurant system in the world, based on number of locations. The firm generates Read more

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