Yum! Shares Rise on UBS Upgrade
From Staff Reports
Shares of Yum! Brands Inc. (YUM) gained 4.25% yesterday (Monday) after UBS AG (UBS) raised its rating to "Buy" from "Neutral."
The Kentucky-based Yum!, which owns such well-known brands as KFC, Pizza Hut and Taco Bell, has been doing very well in overseas markets, particularly China. And it has been on a push to increase domestic sales by revamping U.S. menus, increasing breakfast options and reducing company ownership through a refranchising program of its KFC and Pizza Hut brands, The Associated Press reported.
In a note to clients, UBS analyst David Palmer said that "while some investors have expressed concerns that the U.S. refranchising appeared to slow versus company guidance in 2007, we expect to see that trend reverse in 2008 and 2009."
"We believe the end result for Yum will be a faster-growing, more-international, higher-return company by 2010 – with 40% or more of its enterprise value coming from its rapidly growing China business," he added.
Earlier this month, Yum! announced fourth-quarter earnings that were flat, although strong international growth helped offset the weak domestic results. System-wide sales grew 42% in China and 16% for Yum! Restaurants International (YRI) in the fourth quarter. For the full year, operating-profit growth in China and YRI helped to offset a 3% decline in the United States.
The domestic market was the weak spot in an otherwise strong earnings report. The increase in same-store sales open for at least a year was not enough to boost operating profit, which fell 1% from the prior year due to higher commodity and labor costs.
Shares increased $1.48 yesterday, to close at $36.33.
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